Every business owner eventually has to step aside to make room for his or her successor. Handing over the reins is more than just a formality, however—several important steps must be taken first. Without proper consideration and a clear transfer plan, the successor won’t have the necessary tools and information at their disposal to run the company competently. Similarly, if the original owner isn’t wholeheartedly involved in the handover, it can lead to awkward and even damaging situations following their retirement.
To help, 14 members of Forbes Finance Councilshare their insights about the vital strategies that must be implemented for a business succession to be executed successfully.
1. Formulate and write out a plan.
When it comes to business succession, the one must-remember tip is don’t get in a rush. You didn’t build a company overnight, and it’s going to take some time to pass the baton regarding processes and key relationships. Take the time to write out your ideal situation and then build a plan that accomplishes your goals with clear, actionable steps. - Eric Couch, ProVision Brokerage, LLC
2. Build a leadership pipeline.
Use a process-driven approach to integrate the development of active leaders into the talent process and look into ways to distinguish performance from potential. This helps focus development resources on individuals who have the right mindset and drive. Intent-driven mentorship programs, cross-functional training and deliberate compensation planning can build a strong pipeline of active leaders. - Sal Rehmetullah, Fattmerchant
3. Establish a vision of success and ensure everyone’s on board.
The key step is the communication of a vision of success for the company under the new regime and ensuring everyone is on board with that. Oftentimes, the vision is changed to be in line with the new regime. If the change is not properly communicated, then you have people working toward different goals, which hurts the transition. If everyone knows the vision, the transition goes much smoother. - Evan Jehle, FFO LLC
4. Get the right team around you now.
A business exit could be the single biggest financial event of your life. You need a team of experts, which could include a valuation expert, attorney, CPA and financial advisor. Start building this team at least three years before your exit date so they understand their roles and what you want. It takes a team to win. - Brian Henderson, Whitnell
5. Don’t reward loyalty over competence.
Having worked with many founder-owned businesses, I have found a common mistake is to reward loyalty over competence and appoint the most loyal successor. Founders often find it really hard to truly “let go,” and their desire to keep control may push them to pick a loyal successor—often not the person with the most relevant skills. - Selma Ribica, Ventures01
6. Document every detail of your role.
A post that is not written up will follow the business owner for eternity. Write up the post and every detail so that it is ready for occupation and the job doesn’t turn into a boomerang. Also, hire out of power, not out of exhaustion or disorganization. Too many business owners give up the reins out of stress and because they are actually quitting on the business, not passing it to the next executive in line. - Jerry Fetta, Wealth DynamX
7. Slowly phase yourself out of operations.
Remember that you decided to leave for a reason, and you need to have faith in your successor. Put together a plan with your successor to slowly phase yourself out of the day-to-day operations. This will give the successor the time they need to garner the respect of the employees and the employees the time they need to realize the management change. - Matthew Meehan, Shield Advisory Group
8. Get your successor involved as early as possible.
Get the successor involved in the business and introduced to the stakeholders as early as possible. This brings about at least three advantages. From a business perspective, it ensures a smoother transition in leadership. From the owner’s perspective, it enables them to further evaluate the choice of successor. And from the successor’s perspective, it provides a better platform for success. - Frans Wiwanto, Flywire
9. Create a decision matrix for the new leader and their team.
The decision matrix should include specific tasks, who has permission to complete the task or make the decision, and if anyone else is needed. For example, who has the authority to make the decision to acquire a new business or set up a loan account? The matrix should indicate which positions in the company can make that decision. - David Gass, Anderson Business Advisors, LLC
10. Get to know your successor well.
The need to have a well-designed succession plan in place is critical to the long-term health of a company. A key component is to invest the time to fully know the person you intend to follow you. Spend time building a solid relationship. Get to know the person, their family and their “worldview” on things to determine if their thinking lines up with yours—are they smart, hungry and humble? - Mike Hardwick, Churchill Mortgage Corporation
11. Give new leadership time to run things while you’re still there.
The key to a successful business transition is “timing, timing, timing.” The business owner should have already stepped back from the day-to-day operations and implemented systems and processes that allow the new leader to flourish from the onset. Essentially, the new leader should be operating the company consistently, with guidance, before the old leader steps aside. - Justin Goodbread, Heritage Investors
12. Continue to serve as a mentor.
Rule number one is to retain the departing business owner as an advisor to mentor the new leadership team. Too often I have seen successors, in their eagerness to stamp their authority within the company, make drastic personnel and business model changes without knowing why they were there in the first place. I have seen it in banks, corporations, sporting clubs, business associations, etc. - Andrew Koh, HBL Ltd. Singapore
13. Announce succession plans early on.
Do not keep this a secret from your team. Announce your succession plans early and get the successor integrated into the operation and your team as quickly as possible. There can be a lot of hurt feelings if a change is made instantly, without warning, and you risk losing your team, customers, suppliers and other key relationships. Getting everyone on board early will prevent future pain. - Aaron Spool, Eventus Advisory Group, LLC
14. Know what you want to do next.
Business owners who have built daily routines over many years may suddenly find themselves with a lot of free time on their hands. If they don’t have a plan for what to do with their time, they often feel lost. Exit planning should involve some level of future planning too. What will you do to stay busy and feel the rewards of your exit?
This article originally appeared on Forbes.
