When owners think about selling their company—or passing it on to their children or close family members—the first mistake they make is not starting early enough to identify future owners and begin the transition process. Without a good transition, the value of your company could suffer.
There are lots of reasons for not planning for succession: You are consumed by the day-to-day details of running the company; you don’t want to give up control to others; you think they aren’t ready; or maybe you think you can make more money for your retirement if you stay with your job longer—placing personal needs before company needs.
When to start the process
Mike Clancy, a principal of FMI Corp. in Houston, Texas, says most construction businesses today are family-owned with more than one child in the family. Owners start companies because they tend to be good at construction, but often they aren’t good at people development. So their focus on construction usually takes precedence over training the next generation.
Clancy urges business owners to seek good advice. “If you are a small company, this might best happen with your attorney; but if you are a larger company, it’s best to seek out more experienced help,” he says.
The optimal time to start thinking about succession is in middle age, and the process typically takes between five and seven years to develop and implement. Primary considerations include the best time to retire and whether the goal is to maximize your retirement or hand down a strong business. If you are transferring your company to a family member, or you want to leave a legacy, strengthening the business might be more important than your retirement income.
More than one child
If there is more than one child in the family, the issue of succession becomes more complicated. Children aren’t created equal in terms of skills and interests, so consider the following:
• Focus on what’s best for the company and move family members into positions that best suit their skills. Pay according to job responsibility—being fair takes precedence over treating children equally.
• Only family members who work for the business should be owners (no absentee owners).
• Plan adequate time for your children to train for their jobs, especially managers.
• Don’t structure positions so that kids are pitted against each other in the business.
• Treat your children well and be supportive if you want them to be good owners.
No matter what happens in the running of the business, Clancy urges you to think about what it will take for your family to sit around the Thanksgiving table each year feeling good about each other as well as the business they share.
Joe Nasvik is a writer and editor serving the construction and concrete industries. He has 18 years’ experience as a concrete contractor. Contact him at email@example.com.
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