For a family-owned business, the transition of ownership from one generation to the next is a critical step. This pivotal moment is not just about passing the reins of leadership but also represents a shift in the dynamics of the business and the family. A business in transition is at risk of losing its identity, culture, employees, and potentially its revenue pipeline if the customer base is strongly tied to the identity and personal brand of the founder. However, if managed with care and thoughtful decision-making, a business transition can weather the challenges and avoid the potentially fatal risks, while setting up the next generation for long-term strength and prosperity. This series will identify and discuss several legal and management tools to aid in the transition process, with an eye toward their impact on your business’s long-term success, financial stability, and legacy.

This article continues our series on the transition of ownership of family-owned businesses. Each article will focus on a different aspect of the business transition, resulting in a broad overview of the challenges commonly faced by business owners who leave their companies in the care of the next generation. We invite you to review the series in its entirety.

2. Integrate Your Successor into Management Before the Formal Transfer

Successful transitions do not happen overnight. Integrating your chosen successor into the management structure of the business is a strategic investment in the future health of the business and should be done thoughtfully.

A key aspect of transitioning the reins of leadership to your successor is the gradual transfer of responsibilities. It is common for a future leader to serve in a junior management role for several years, to develop their leadership skills and build trust within the business.

Begin by identifying areas of the company where the successor’s current skills and abilities can shine, and intentionally give them increasing responsibility and control. For example, the successor could start by shadowing key managers, attending and participating in high-level meetings, or taking on specific projects. Internal and external partners will see and appreciate the current owner’s trust in, and increasing reliance on, the successor. Over time, this will build the successor’s own brand and authority as a key member of the business.

Effective leadership can also come from the mentoring and guidance of the current owner. Through regular one-on-one training, strategic discussions, and constructive feedback, the owner can impart the necessary knowledge and values that have made them a successful leader in the past. Then, the successor is able to implement those tools over time in their junior management role. Mentoring and guidance can be invaluable for the success of the transition, as it consistently reinforces the fact that the successor is part of, and connected to, the history and stability of the company.

In addition, the successor should be part of the company’s strategic decision-making before the planned transition, as these choices may affect them more strongly than the current owner. Actively involving the successor in discussions about the future of the business or industry, market trends, and opportunities both harness their new perspectives and gives them a sense of ownership of the business, even if their actual ownership is still years in the future. By supporting the successor’s ideas and input, the business will strongly communicate to other employees and outside partners that the successor is the future of the business and will begin to cement the successor’s identity as a leader of the business.

Why It Matters for Long-Term Success: Hands-on experience in managing the business equips your successor with the knowledge and expertise needed to make informed decisions. It nurtures their ability to adapt to unforeseen challenges and innovate and establishes their leadership and the business’s trust in them for its future success.