How to prepare the next generation to take over your business

While many business owners dream of passing their business on to their children one day, fewer are thinking about what they need to be doing now to facilitate their family business succession. A smooth handover requires careful preparation. 

Will staff and colleagues respect the next generation of leaders? Will these new leaders have the skills and experience to handle the responsibility that comes with being an owner or chief executive? Will the children who don’t want to take over the business feel they’re being fairly compensated?

These are the questions that Myron Uhryn and Christoff Boshoff, senior financial advisors with ATB Wealth, help business owners answer with confidence. As certified exit planning strategists, they help business owners, including many farmers, with all aspects of succession planning—from training to bookkeeping to aligning family member expectations. Here are their top three tips on how to successfully prepare the next generation to run a business.

Encourage work experience outside the company

Working for non-family members is an important rite of passage. Future business leaders can better hone their professionalism, observe the pros and cons of different management styles, develop their skill set and build confidence in a less cloistered environment than the family business may be able to provide. 

As Uhryn explains, broader work experience also helps children figure out what they really want to do with their lives, and empowers them to feel confident in their decision to take over the family business, or not. “There’s a risk, if you just go straight into the company out of high school or post-secondary training, that you may turn around 10 or 20 years down the road and say, ‘This wasn’t really what I wanted to do.’”

Create an internal development plan

Respect isn’t gained overnight. Too often, Uhryn and Boshoff see business owners expecting their children to take over without adequately preparing them for the role. They’re also familiar with situations where children have been forced to take over a business earlier than expected, because the owner experiences a sudden health crisis, or because of another unforeseen event. Lack of experience and orientation can lead the next generation to make rookie mistakes.

Uhyrn and Boshofff recommend preparing children for succession as early as possible. One of the best ways to do this is by gradually increasing their management responsibilities over time and thinking carefully about their professional development. Boshoff suggests business owners ask themselves a few key questions: “Who are the key people within the family that we want to transition into leadership? Where are they now? What skills do they need? And what personal development do they need?”

Business owners can promote personal development by allowing the younger generation to try out new ideas, and by considering new systems or practices. If prospective new leaders are only taught how to adhere to the current owner’s strategies and practices, they can flounder. Successful, sustainable businesses need to be able to adapt and evolve, especially over multiple generations.

Ensure a fair deal for siblings

It’s not easy to plan a fair deal when some children want to continue in the family business, while others don’t. For the sake of family unity and also the long-term success of the business, it’s important to be transparent and involve external valuators in succession planning. 

“There are different types of valuations for different purposes, and most people don’t know that,” explains Uhryn. A valuation conducted for the purposes of transitioning farmland to family and compensating non-farming family members over time, requires different methods than a valuation for tax purposes or for selling a business on the open market, for example.

Exit planning strategists work with you to determine what type of valuation best suits your family’s needs. Involving a third-party increases’ family members’ trust that the process is fair and well-researched. Exit planning stages can also help communicate the plan, including when extra help for the new generation of leadership is necessary to keep the business within the family. As Uhryn puts it, “It’s important to manage perceptions of what is fair, and fair does not always mean equal.”