Q: I am not ready to retire, but I would like to step away from the day-to-day management and operation of my company. What steps can I take to make the transition to the next generation of leadership smoother?
A: It makes sense to develop a succession plan well in advance of your retirement. Many business owners find the prospect of doing so overwhelming. However, making a deliberate plan for ownership and management succession can help ensure a smooth transition. The transfer of ownership in the business can be accomplished by contract. You can enter into a purchase agreement with the future owners setting forth the terms of the sale, including your future participation, if you do not plan to exit the business fully. While ownership transfer in and of itself is a big undertaking, it is equally important to prepare and train the next generation of management. This requires planning and time to ensure they develop the necessary leadership skills.
You may currently seek guidance from a board of directors. However, your board may consist solely of the current owners. Relinquishing control of your company by expanding the board of directors is a big step. An alternative is to establish an advisory board. For now, the advisors can offer you non-binding, high-level suggestions for performance and leadership initiatives, advice and strategic recommendations. Serving as an advisor will help train your successors and give them the tools necessary to continue the successful operation of the company. Eventually, the advisory board will become part of the management structure you put in place to survive your exit from the company.
Start by considering which individuals within your business would comprise a strong and effective advisory board, including key employees and future owners. Give thought to approaching individuals outside the company, including your CPA and other trusted advisors. Outside advisors bring specialized expertise and offer a different perspective. Ideal candidates can lead independently without heavily relying on you for guidance.
Once the advisory board has been established, consider drafting a letter to your advisors expressing your thoughts and wishes for an emergency transition. If you have an accident or fall seriously ill, the advisory board can step into your place and keep the company open and operating.
Planning for succession can be stressful. However, establishing an advisory board and investing in the next generation now will help render the process less daunting. Taking steps now will help you enjoy your time away from the business and will eventually allow you to focus on your retirement, knowing your company is in good hands.
Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association. Questions and ideas for future columns should be emailed to [email protected]. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.