If you’re a single digit millionaire, you may not have the luxury of owning multiple businesses. Indeed, it’s quite common for those in this demographic to be fully invested in a single SME, or to have themselves inherited the family business. This means handing down the torch is a delicate process: you may be passing on not just the future of the business, but your own future financial security. Here’s how to make sure your successor is best prepared:
1. Prepare the business, not just your successor
A common mistake is to focus entirely on the son or daughter taking over your business, and expecting them to fully adapt. In truth, it’s a two-way street: changes must also be made to your business, to accommodate your successor.
A typical example would be staff who are attached to your leadership style: perhaps you’re used to setting general goals, and leaving your staff to figure things out. But your child may have a more top-down, step-by-step approach to leading (especially at the start). Staff who aren’t prepared for this are likely to be frustrated. You may need to shuffle positions around, giving both them and your successor time to adapt.
You may also have a sense of your child’s strengths and weaknesses. If they’re a little less organised with tracking money, it may be time to switch to a full-time accountant. Likewise, if they’re always on social media and have a knack for digital content, then perhaps it’s time to let them take the reins from your hired digital marketer.
Be willing to ask for changes in both the business as well as its incoming successor; don’t force only one side to make changes.
2. Try to avoid equal authority for the sake of “fairness”
If you have more than one child taking over the business, here’s a bit of blunt truth: businesses seldom function well as democracies. If you divide control equally between each child, then disputes between your children will paralyze the entire business.
The absolute worst scenario to have is a family businesses divided into warring factions, with employees having to take sides with specific sons or daughters. This runs the risk of the future successors deliberately undermining each other, at the cost of the family fortune.
It’s preferable to have one person in charge, while delegating specific roles to the others. If they absolutely won’t agree to this, a last resort may be to split the business into separate firms, with non-competing but tangential services or products.
Be sure to communicate, or even over-communicate, your thoughts and intentions while doing this. The more open you are about how you delegate authority, the less resistance (and the fewer conspiracy theories) your children will embrace later.
3. Encourage your children to work elsewhere before taking over
Allow your children to work for the company for short stints (e.g., during term breaks, or for a few months of the year), but still encourage them to work elsewhere before taking over. Consider giving them a few years after completing their studies, to work in other firms.
This has two advantages: the first is that they learn critical soft skills, such as dealing with employees and clients, which can’t really be taught in a classroom. One of the most critical skills is learning to practically apply their education.
The second advantage is that, in the process of working elsewhere, your successors build their networks. A former boss may become a future client, or former colleagues – who excel at their jobs – may be convinced to follow them back to the family business.
If you want to be sly, you might also consider that – when your children are making their first major career blunders – it will come at the cost of another employer. Every mistake is a learning opportunity…but ideally, you’re not the paying for that opportunity.
4. Use a phased exit strategy, with flexible but clear dates
It’s best to withdraw one step at a time, rather than have a single fixed date where you retire from the business altogether. This rarely works for family businesses anyway, as those who try it are often sucked back in for months or even decades after they’d planned to quit.
Instead, have a written plan on how you’ll exit the business, by withdrawing from one or two responsibilities at a time. You can be flexible about the exact dates, but do have at least a general idea of the months and years where you’re expected to withdraw from certain aspects of the business (this can also be used to track the progress of your successor).
This calendar isn’t just for your successors; it’s for your staff as well. If you’ve been the matriarch running the family mini-mart for 30 years, it’s possible your grandchildren, nieces, etc. who work there will still call you instead of your daughter; even if she officially took over the business years ago.
A phased exit, with clear timelines, can help to mitigate some of these issues.
5. Don’t try to do it all by yourself
It’s best to use a team effort, especially for family businesses where your successor already knows siblings, aunts, uncles, cousins, etc. in the company. Rather than try to show them the ropes all on your own, have the different family members teach them different skills, and how to handle different departments.
This will take some of the stress off you, while also exposing them to the working styles and expectations of different departments / family members. If they’re going to be in charge of the overall business, they’ll also need to know the specific challenges faced by different departments; so this is good hands-on experience.
As a final safety lever, consider that if the worst happens (e.g., you pass on before fully handing over the business), the rest of the team can carry on grooming your successor.
Finally, don’t forget to discuss safeguards like existing business insurance
Be prepared for situations where you’re not around, and your successor is forced to suddenly take over. In these instances, they must be aware of contingencies you’ve made – this includes insurance coverage for the business, in areas such as liability insurance, key man insurance, and any group insurance plans for the employees.
If your successor is unaware of these, it can result in over-insurance (e.g., buying redundant policies because they don’t know what’s already in place), or failure to make claims when appropriate.
Business insurance policies do tend to be more complex, and you may want your financial advisor to walk your successor through the policies as well.
For more help in this area, follow us on Single Digit Millionaire (put the CTA here). You can also follow us for news and tips, on surviving as one of Singapore’s most “sandwiched” demographics.
