How to make a succession plan that works

Hey everyone,

Hope everyone’s been having a great start to Q2!

In this newsletter we talk a lot about the value of business exits and liquidity events, but what about when you want to keep things in the family? I’ve written before about the diversification that comes from a business sale, but relying on an exit can be a different type of ‘putting all your eggs in one basket’.

It’s good to have a plan, even if it’s only a contingency plan, of a potential succession to your children as an alternative to a sale, and it’s perfectly natural to think about turning your company into a family affair.

As a general principle, children usually want to do things differently than their parents, so making them immediately go into a family business can cause tension. Therefore you should want to send them into ‘the real world’ for a few years working at other jobs before having them join your operation. This will make them appreciate how hard it is to build sustainable revenue, and in my opinion some time apart will make your relationship better when you do reconnect.

Also, when it comes to an eventual sale, it’s actually a very good idea to transfer management to children because it shows that the business can be transferred in a takeover. Theoretically if it’s already been taken over once, why not again? This will give confidence to a future buyer, almost like a proof-of-concept.

And teaching everything there is to know about the business is a very good preparation for sale interviews without the risk of a deal falling through. You’ll get to refine your pitch and your explanations of the business in a controlled setting

Taking all this into consideration, my recommendation would be setting up a timeline (could be weeks, could be months) for one of your children to take over the business and learn the ropes of management, while consciously building a template where a buyer can do the exact same thing. That way you’ve created a blueprint for a sale when the time or opportunity does come.

That’s all for this week, see you next wednesday!

As always, any questions let us know

Unlocking Wealth Weekly