You might be wondering why we’re talking about successors so much.
For months we’ve been analyzing various elements regarding selecting the best person to take over when you transition out of being the CEO because so much of your business’s future roadmap depends on this decision.
But what should you look for when choosing a new CEO? How will you know if you’ve made the right choice?
Here are five of our top considerations when approaching this important decision.
Implementing a Succession Plan Is Challenging For Many Family Businesses
In so many ways, Family-owned businesses are the backbone of the United States. In fact, they make up 90% of all business enterprises in North America!1 And while they’re incredibly vital players in the workforce and economy, many small businesses lack solid succession plans.
But if you think about it, there are few events more disruptive to a business than an owner exiting. When done the wrong way, this news causes confusion, hurt, and distrust amongst employees.
If you’re about five to seven years from retirement, now’s the time to start the selection process and focus on grooming your successor. Trust us; you won’t find a CEO overnight. And don’t assume a child will want to take over the business either– not everyone is prepared (or willing) to walk in their parent’s footsteps.
Top Considerations for Naming Your Successor
Instead of making assumptions or putting off the selection process, follow these five tips to decide, as a part of family business planning, who will take your place in the family business.
#1: Figure Out What The Business Needs
Instead of starting with a list of people, start with a list of qualities and characteristics you’re looking for in a successor.
What does your business need in a new leader? A visionary, a detail-oriented person, a seasoned pro? The direction of your company depends on the person you put in charge, so this decision warrants some thought and reflection.
Consider the long-term goals you have for your business as well. You want the new CEO to be well-acquainted with these goals and prepared to help bring them to fruition.
Are there particular skills or qualities they should already have, or are you looking for someone who can grow in the role? Remember, it’s okay if their leadership style and vision aren’t exactly the same as yours.
Instead, you’re looking for someone who can successfully lead in the direction you and your leadership team envision for the company. That’s why selecting someone with integrity, and an alignment on vision is key.
#2: Be Realistic About Family Involvement
Many founders dream of passing their business on to their children. If that sounds like you, is this something you’ve actually discussed with your kids? Too often, this vision is something that’s never actually communicated with others.
Before assuming your succession plan is set in stone, talk to your family and gauge their interest. If your children are grown and live out of state, they may not want to uproot their lives to come back to the St. Louis area. Be considerate and cognizant of their potential roadblocks or hesitations.
Say you’re confident your child is willing to take your place in the business. The next question is, do they have the core skills and knowledge to take on the role? Consider any training, courses, or certifications they need to pursue to become a competent leader.
Keep in mind the challenging personal dynamics of naming (or not naming) a child as your successor. Others may feel they’re more deserving of the role and that the family member was handed the job without consideration for other candidates.
On the other hand, if you choose not to put your child in the role of CEO, will they be upset? Can they still work well with others and take direction from someone who isn’t family?
These are all important considerations to make when naming a family member as your successor.
#3: Remain Open To Internal and External Company Talent
When looking internally at your business, you may be pleasantly surprised to find a wealth of wonderful candidates for the job. Maybe there’s someone who would do well on a partnership track, especially if they’ve worked their way up through the company. These types of candidates are often loyal, passionate, and knowledgeable about all aspects of the business.
Don’t hesitate to look externally as you focus on filling this position, too. Review your network of peers and professional connections to determine if there’s someone with the level of experience and expertise needed to fill your role.
#4: Narrow Down Your Candidates and Make Honest Evaluations
Once you have a handful of candidates, it’s time to evaluate their fit for the job. A CEO needs to have the whole package—a dedication to culture, the ability to lead, and a clear vision for the future.
Give yourself and your candidates plenty of time to show what they can do and whether they’re the right fit for the role. This is one of the most important decisions you’ll make for your business, and it deserves ample time and consideration.
#5: Clearly Communicate Your Decision
Once you’ve determined the route you want to take, communicate your decision with all necessary parties. Your level of confidence in this decision will impact how your fellow leaders and employees feel. Be honest and fair while outlining expectations, timelines, potential changes, and more.
Looking for a Succession Planning Partner?
The transition to retirement should be something to celebrate, and we’re here to help. Our team assists business owners who are looking to transition out of their business by providing step-by-step guidance on the succession planning process.
Craig Toberman is the Founder of Toberman Wealth – a fee-only financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.
Craig received a Bachelor of Science (B.S.) degree in Agricultural and Consumer Economics from the University of Illinois and a Master of Business Administration (M.B.A.) degree in Finance from Saint Louis University. He is a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) charterholder, and Certified Public Accountant (CPA).
Craig is a member of the National Association of Personal Financial Advisors (NAPFA), Fee-Only Network, and XY Planning Network.
Craig lives in the greater St. Louis area with his wife, Ally and son, Hank.