If you’ve spent years working with family in the business, you’ve probably got a very good idea of who your successor will be. They should be someone who’s in it for the long haul, who has a genuine interest in seeing the business continue to grow and flourish. They should be respected by other employees, who recognize them as your logical successor.
Regardless of who it is, passing your business on to family comes with an extended hand-over period during which they shadow you to learn every element of the business’s day-to-day running, learning what they don’t already know. Keep in mind:
- They must have the necessary skills to take your place. Don’t confuse their shadowing you as adequate industry training.
- Because they’re family if they have issues post-sale, it’s you they will ask for help. Complete your due diligence on your successor to make sure the business operation is better off after you’ve left.
Preparing your successor
Your first task is to document everything that happens in the business (almost like a ‘download’ of what’s inside your head), so the new owner can run the business without you. The first task for them could be creating manuals that outline all your operating processes and business ‘know-how’.
Then work through the following steps:
- Let them watch you work. They need to learn as much as they can. Continually explain why you do things a certain way and how you make decisions.
- Dip their toes in by letting them make some decisions, with your guidance. Work together on key projects. Encourage and correct them.
- As they gain in confidence and ability, give them more decisions to make, with you as an advisor rather than guiding them. Let them make mistakes and show them how to fix them. It’s the only way they’ll learn to solve problems.
- Give them total control. Encourage and empower them so that they are truly ready to run the business without you. This is one of the greatest challenges for most business owners.
As you’ll see, this process works by gradually easing you out, as they ease in. Following these steps is essential for successfully delegating control. Handing over the reins in one fell swoop almost never works, as the new owner can be left feeling overwhelmed and without the necessary skills, while you walk away from the business thinking you’ve left it in control.
Decide on the terms of the sale
Although selling to family is often less stressful and doesn’t take as long as selling to a third party, it’s still important that everything’s above board. Making sure all the boxes are ticked legally prevents any disagreements further down the track, the kind that can spill over into family gatherings.
Consult with your lawyers and accountants. Make sure that you:
- Accurately value the business and all its assets, so you have a clear idea of what it’s worth.
- Decide how you’re going to be paid. Because you’re selling to family, you might agree to a structured payment plan rather than making them cough up all the cash straight away.
- Decide if you’ll still retain some shares in the business, even after your retirement.
- Working with your advisors, draft a sales agreement that covers all necessary terms and contingencies.
It’s essential that all parties are clear on how the sale will be structured. Misunderstandings can lead to ongoing disputes especially if there are other family members who are not working in the business but have some financial stake.
Transferring control and letting go
Learning to delegate control and then letting go of the reins entirely is especially important when selling to family. Put together a transition team who’ll help you transfer control. They should be people who are not emotionally involved, like your accountant, lawyer, or a business broker. Maintain open communication with your team and your successors.
Once the new owner has taken control, all decisions are theirs. And now it’s time to do the hardest part of all – leave. Believe it or not, this isn’t as easy as it sounds, especially if you’ve built the business up from scratch.