How to Choose a Successor

Succession is the transferring of leadership to the next generation. It is a process rather than an event. While there is a time frame within which the transition will occur, the actual amount of time taken for the process is arbitrary. It will depend on you, your family and the type of family business you are in. This is a difficult process for most family businesses. The failure to face and plan for succession has been termed the "succession conspiracy" by Ivan Landsberg. He cites a number of forces that act against succession planning:

Founder

Fear of death.

Reluctance to let go of power and control.

Personal loss of identity.

Fear of losing work activity.

Feelings of jealousy and rivalry toward successor.

Family

Founder's spouse's reluctance to let go of role in firm.

Norms against discussing family's future beyond lifetime of parents.

Norms against "favoring" siblings.

Fear of parental death.

Employees

Reluctance to let go of personal relationship with founder.

Fears of differentiating among key managers.

Reluctance to establish formal controls.

Fear of change

Environmental

Founder's colleagues and friends continue to work.

Dependence of clients on founder.

Cultural values that discourage succession planning.

Overcoming the forces against succession planning requires the commitment of the family and employees of the business.

Succession occurs in four phases: initiation, selection, education and transition. A discussion of each phase follows.

Initiation

The initiation phase is that period of time when the children learn about the family business. It occurs from the time the children are born. A child can receive either a positive or a negative impression of the family business. If parents bring home the negative aspects of the business, complaining about it and about employees and relatives, the children will view the business in a very poor light. Other ways to destroy children's interest in the business is to be secretive about it or to convey an unwelcome or a hands-off attitude. There are families in which children are welcome to join the family business, but no one has told them so.

Owners are often cautious about systematically conditioning their children to enter the family business, an attitude that stems primarily from their awareness of individual differences and their belief that their children should be free to select a career path. If you do want your children to enter the business, or at least have that as a career alternative, there are some steps you can take to initiate them into the firm. The first step in motivating your children is to be certain that is what you want. Your lack of conviction about their involvement will be communicated to them. This may be interpreted as doubt about their ability, about the viability of the business or about the potential of the parent-child relationship to survive the strain of succession. Any of these situations can cause your child to lose interest in the business.

Assuming your children know that you want them to enter the business, you should talk with them often and openly about it. Be realistic, but stress the positive aspects. Your business provides you with many positive experiences to share with your children. Your children should learn what values the business represents, what the business culture represents and where the business is headed.

Selection

Selection is the process of choosing who will be the firm's leader in the next generation. Of the entire transition process, this can be the most difficult step, especially if you must choose among a number of children. Selecting a successor may be viewed by siblings as favoring one child over the others, a perception that can be disastrous to family well-being and sibling harmony. Owners select successors on the basis of age, sex, qualifications or performance. Because of the potential for emotional upheaval, some owners avoid the issue entirely, adopting an attitude of "Let them figure it out when I'm gone."

Nevertheless, there are several solutions to this dilemma. Assuming you have more than one child who is or can become qualified for the position of president, you can select your successor based on age. For example, the oldest child becomes the successor. Unfortunately, the oldest may not be the best qualified. Placing age or sex restrictions on succession is not a good idea.

Alternatively, you could have a "horse race." Let the candidates fight it out, and the "best person" wins. While this is the style in some major corporations, it is not the best option for all family businesses.

Family business owners may want to take advantage of a successor selection model developed for corporate executive succession. In this model, family members, using the strategic business plan, develop specific company objectives and goals for the future president or chief executive officer. The job description includes the requirements for the position--such as skills, experience and possibly personality attributes. For example, if a firm plans to pursue growth in the next five years, the potential successor would be required to have a thorough understanding of business valuations and financial statements, the ability to negotiate and a good relationship with local financial institutions.

Designing such job descriptions provides a number of benefits. First, it removes the emotional aspect from successor selection. If necessary, the successor can acquire any special training the job description outlines. Second, it provides the business with a set of future goals and objectives that have been developed by the whole family. Finally, the founder may feel more comfortable knowing objectives are in place that will ensure a growing, healthy business.

If you have an outside board of directors, you may want to solicit their input regarding successor selection.

Education

Training or educating the successor in the firm is a delicate process. Many times a parent finds it difficult to train a child to be successor. If so, an alternative trainer may be found within the firm. A successful trainer will be logical, committed to the task, credible and action oriented. These attributes, when tied into a program that is mission aligned, results oriented, reality-driven, learner centered and risk sensitive, will produce a well-trained beneficiary. All of this, of course, is easier stated than accomplished.

Why do some Business managers reach the profit target more frequently than others? They do it because they keep their operation
pointed in this direction - management of profit earning. They never drop sight of this goal - to complete the year with a profit.

This guide Gives suggestions that should help an owner-manager to zero in on profit earning. It points out that you have to stay
informed, make timely decisions, and take effective action. In effect you must control the actions of your company instead of
being controlled by them.

Topnotch Functionality in golf, shootingfishing demands understanding, practice, and perseverance.

Likewise in Small businesses, year-end profit comes to the owner-manager who tries for topnotch performance. You achieve profit
making targets by understanding your performance, by practicing the craft of making timely, balanced decisions and by controlling
the organization's actions.

Adapt the Suggestions in this manual to your situation. They ought to help you predict the shots to keep your company headed in
the ideal direction - toward profit making.

First Rule of Profit Making: Know Your Business. The Time-honored truth"Knowledge is power" is especially pertinent to this
owner-manager of a small business. To keep your business pointed toward profit you need to keep yourself well informed about it.
You must know how the organization is doing before you can enhance its operation. You have to know its weak points before you can
correct them. Some of the information you require you pick up from day-to-day personal observation, but documents should be your
principal source of information about gains, costs, and earnings.

Know Your Gain. The profit and loss statement (or income Statement) prepared frequently each month or each quarter from your
accountant is one of the most essential indicators of your company's value and wellbeing. You should be sure that this statement
contains all of the facts you will need for evaluating your profit. This announcement must pinpoint each earnings and price area.
For example, it should demonstrate the gain and loss for each of your products and product lines in addition to the profit and
loss for your entire operation.

It's a good Thought to have your own profit and loss statement prepared that it shows each product for the current period, for the
identical period this past year, and also for the current year-to-date. For example, a P&L announcement for the month of November
would reveal income and expenses for the current month, for November last year, and totals for the eleven months of this present
year. Many corporations publish their annual reports with a few previous decades therefore stockholders can compare earnings.

Comparison is The key to using your P&L statement. If your accountant isn't already supplying figures which you may compare, you
need to discuss the possibility of having them provided.

Financial Ratios out of your balance sheet also allow you to understand if your gain is what it should be. As an instance, the
ratio of net worth (return on investment ratio) reveals what the business brought on the equity capital invested.

Know Your Costs. An owner-manager should know costs in detail. Then, you can compare your cost figures as a percentage of earnings
(operating ratio). Be certain that your prices are itemized so that you can put your fingers on the ones that seem to be rising or
decreasing according to your experience and the cost figures of your industry. When costs are itemized, you are able to spot the
offender once the overall figure is higher than what you had budgeted. Take advertising costs for example. You can grab the
offender if you break out your advertising expenses by product lines and from media. In addition, a thorough check of question
yields from advertising will help avoid unsuccessful books.

In understanding your Costs, remember that the formulation for profit is: Gain equals Earnings minus Costs.

Know Your Product Markup. Be certain The pricing of your goods provides a markup adequate for the kind of profit you expect to
attain. You have to keep constantly educated on pricing since you have to adjust for increasing costs and at the exact same time
keep costs competitive. Knowledge on your markup also can help you to run workouts with your eyes open. Continuing to make
something which just a few clients want is an effective merchandising tool only when you use it on goal - for example, to hold or
draw buyers for other high markup products. Do not be afraid to shed a loser out of your line.

Garbage-In, Garbage-Out. An Owner-manager shouldn't fudge the documents. The acronym GIGO that the computer industry uses is true
with manually stored records in addition to with machine-processed ones. When an owner-manager allows"garbage" to go into the
records, the reports will contain"garbage" Reports do not need to be extensive but they need to be accurate.

Search For Trends. Try not to look at one month's earnings or Profit image by itself. The figures on your working statements are
significant only when you set the picture in the right frame - that is, take a look in the figures from the context of what's
happened and what's very likely to happen. In that manner, you grab a downward trend before it gets out of hand.

You should also Concern yourself with all the figures behind the dollars - for instance, the number Of units offered or the number
of orders. Insist on cost-per-unit statistics. The Fluctuation of the cost-per-unit can be more meaningful than just looking At
the dollar figures alone. Another idea would be to display these comparative Figures on charts so that significant trends can be
viewed easily.

 machine-shop maid-service mailbox makeup-artist makeup-studio manpower-agency marketing-consultant mary-kay masonry massage meal-prep mechanic medical-billing medicine-wholesale men-clothing merchandise metal-fabrication microfinance microfinance microgreens milk-dairy million-dollar mineral-water mink-lash mobile-app mobile-car-wash mobile-mechanic momos money-transfer mortgage-broker moving mug-printing mushroom music-studio mystery-box nail-art office-space-rental oil-change oil-mill oil-refinery online-retail optical organic-farming outsourcing owner-operator-trucking paintball-field paper-bag-making parking-lot