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ATTENTION: Baby Boomers (and anyone who plans on ever retiring)

ATTENTION: Baby Boomers (and anyone who plans on ever retiring)

December 14, 2016

The workforce is undergoing a fundamental change during this decade. Millennials are coming into the workplace by the millions, while Baby Boomers leave in equal numbers.

Many Boomers have waited until after the Recession and economic uncertainty to retire, so now there's an incredibly pent up demand for Boomers to find their proverbial "exit doors." And when you're the founder and CEO of a family owned company, there is a pent up demand for guidance in handing it off to the next generation.

Entrepreneur magazine writes that an astronomical 90% of American businesses are family-owned. With so many family businesses in our communities, we would think that Americans should be able to handle family business challenges. However, transferring businesses down the family line, an essential component of keeping a family business, has troubled over two-thirds of such owners.

How do you hand over your cherished family business?

Step 1 is "Know Thyself" and "Know Thy Options."

The typical aging Owner/Manager of a business is really 4 personalities in one. Can you recognize yourself in this scenario?

  1. You're firstly the owner: focused on ROI, planning for company growth, increasing sales, and keeping down expenses.
  2. You're also the best employee: first one in and last one out each day.
  3. You're the manager, who hires, fires and organizes.
  4. And on top of that, you're human. You're aging physically, and psychologically and have different needs than you had 20 years ago.

I'll say it like it is: Expecting a next gen family member to step into your shoes - and fill them - is unrealistic. There will need to be a transition from an entrepreneurial, founder-led mindset to an institutional one as the next generation comes in.

Successful generational business transitions involve strategic planning, which takes years to fully implement. The many different hats you wear now may need multiple heads in the next phase.

The sooner you put these plans in place, the more calm and efficient the generational transition will be.

It's hard for some ornery entrepreneurs to believe, but retirement and death are unavoidable. At some point, you've got to go. Waiting until things are "more settled" with your business or for family personalities to mature is not wise. This leaves the company vulnerable to disintegration if you must retire quickly or die prematurely.

Even if you're not ready to retire, plan for the younger generation to learn the business methodically and efficiently. Groom them!

In the generational baton hand off, you'll need to shift from being the CEO to the CTO (Chief Training Officer). You're probably used to doing the task at hand, rather than teaching and documenting it. And there may be hidden psychological reasons why you'd rather not train others.


CLICK HERE for The Top 8 Reasons
Why Founders Don't Prepare for the Generational Hand Off.

 

In order to begin your transition, take these next 3 essential steps:

1. Make a succession board consisting of risk taking peers.

Most company boards consist of the owner, the owner's spouse, a child in the business and the company attorney or accountant. This means that the owner makes the decisions with no one else saying "boo". Put people on your board who are independent of your business. Pay them a fee, or ask business savvy friends to give advice for free.

2. Ask yourself:

  • How much money must you have accumulated in order to retire? Meet with a financial advisor to determine your retirement needs. Do you prefer a lump sum payout, or a payout over time?
  • How much do you want to keep an active role? What's your desire to continue having a hand in the business?
  • What's your timeframe for stepping back or out? What are the milestones that are coming up in your life?

3. Think through the options to pass off your business responsibilities.

Which would you prefer? Which makes the most sense for your business and business model?

  • Sell the company outright. This could be to the next generation family members, an unrelated company, or perhaps a trusted employee. Be aware that there is often a competition for capital when selling a business to next gen family members. The older generation wants the capital as a pay out, while the younger generation wants to retain capital for expansion projects and salaries for increased staff.
  • Hire a managing CEO from outside of the family, while the family members maintain ownership.
  • ESOP is an Employee Stock OPtion, whereby the corporation is majority employee-owned. These organizations are similar to worker cooperatives, but compared with cooperatives, ESOP-centered corporations often allow for company executives to have greater flexibility and control in governing and managing the corporation.
  • Become a paid consultant to the business after stepping back from the day to day operations. This gives you ongoing revenue while being semi-retired. After all, who knows the business better than you?

A good visual model for the process of transition is an hourglass. You are on top, with the sand running down into the next generation's receptacle. You'll be lessening your obligations and responsibilities, while the next generation steadily assumes more.

Transitioning may be a frightening process to some Founders, and an exhilarating process for others.


CLICK HERE for The Top 8 Reasons
Why Founders Don't Prepare for the Generational Hand Off.

 

Understand that you too are transitioning into another phase. The first part of your life has been focused on success; the second phase of your life will be focused on significance.

To find out how to logistically transition a family member into the top job, look for Part 2 in next week's blog. Stay tuned!

 

Taking you from where you are to where you want to be.

Jon