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Leadership Issues In Family Business Transitions

Dec 07, 2009

Many business owners want to leave their business to their children. In the first part of this series, I discussed many of the financial considerations of this transition. This article will discuss some of the leadership challenges that the owner and new leader will face. The transition in leadership from one leader to the next is always difficult, no matter what the situation is. It’s even more difficult when the new leader is the owner’s child.

In order to help make the transition better, there are a number of steps the owner and the family can take.

First, the child should work outside the business for a period of time. I recommend at least four years, and longer is better. By working outside the business, the next leader can gain valuable experience prior to coming into the business. This will give the next leader greater credibility when they come into the business, valuable insight in how others run their business, and many times they will have a much better work ethic than if they just start in the business.

Secondly, there should be a program developed for the next leader to learn the business, especially if the new leader is young. If the business is complex, the program should be extensive. The program should include a period of time in each of the major divisions with the new leader both observing and doing the actual work. The purpose of the development program is to both learn the business, understand what it takes for the employees to be successful, and to gain credibility with the rest of the management team and employees. The best learning is done experientially and the new leader must gain as much experience as possible. While working in the various divisions or departments, I’ve seen that the next leader can bring additional resources to solve problems that might otherwise not get the attention they deserve.

Finally, the owner must understand their own transition out of the business. While it’s easy to say you’ll let the next leader take over, it’s much more difficult to let them lead and make decisions while the owner is still actively involved in the business. Consequently, it’s best that the next leader gradually assume greater responsibilities in more areas of the company. This means that the owner must allow the next leader to make run the area, make mistakes and learn as they go. The owner must come to grips with their transition as they’ve frequently spent their entire life in the business. Letting go is extremely difficult and the transition plan must consider the owner’s emotions.

As stated in Part 1 of this discussion, the owner must plan their exit from the business and consider their numerous objectives and needs. It requires a skilled advisor to assist the owner in creating and working their plan which should include personal and corporate financial issues and leadership challenges. Be sure you get the best assistance you can to increase the likelihood of a successful transition. Contact a B2B CFO® partner to learn more.

 

More from Doug Wurmnest…

About the Author

Doug is an exceptional business advisor with nearly 30 years of financial and operational experience. His goal is to help a business owner meet their objectives by improving cash flow, providing timely and accurate financial reporting, and developing and implementing plans to maximize the value of the business. Doug developed his business insights through diverse roles in the manufacturing, banking, construction, and transportation industries.

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