Tax Article - Looking For a Successor? For Best Results, Keep an Open Mind

Picking someone to lead your company after you step down is probably among the hardest aspects of retiring (or otherwise moving on). Sure, there are some business owners who have a ready-made successor waiting in the wings at a moment’s notice. But many, if not most, have a few viable candidates to consider — often too few.

When looking for a successor, for best results, keep an open mind. Don’t look only at your family — look everywhere.

But before you start, develop a list of must-have attributes — pertaining to areas such as skills, character and experience — to measure candidates against. Focusing on these specifics can help prevent you from becoming smitten with one candidate’s reputation or personal achievements when a critical skill is lacking.

Family Members

If yours is a family-owned business, a natural place to look for a successor is, indeed, your family. Yet, because of the relationships and emotions involved, family business succession planning can be a dicey proposition. In fact, 70% of family-owned businesses don’t survive to the second generation, according to a recent study by the Baylor University Institute for Family Business.

If your children do show an interest in your company, get them involved as early as you can. Encourage possible successors to work after school and on weekends when they’re younger.

When they’re older, require that they work outside the business for at least a few years to learn the humility that comes from starting at the bottom and to gain some alternative perspectives. And when they return to the family business, have them work in multiple areas before moving them up to a leadership role. The one or two who “stick it out” during this long process may well make an excellent choice to succeed you.

Always keep in mind, however, that, even after a thorough apprenticeship, your children may decide that running the family business isn’t for them. As disappointing as this might be, don’t force them to take over your company; doing so may lead to disastrous consequences for everyone involved — as well as for your business.

Non-family Employees

Maybe your company isn’t family-owned; or it is, but you don’t have any family members who are likely to take over. Well, another logical place to look is within the ranks of your current employees.

Keep an eye out for company “stars” who are still early in their careers, regardless of their functional or geographical area. Start developing their leadership skills as early as possible and put them to the test regularly. For example, as time goes on, continually create new projects or positions that give them responsibility for increasingly larger and more complex profit centers to see how they’ll measure up.

External Candidates

If you can’t pinpoint any feasible internal candidates, or maybe you can but you’re concerned they may eventually leave the company rather than take it over, you’ll need to bring in an outsider.

You can identify suitable candidates the old-fashioned way — through classified ads in a national publication such as the Wall Street Journal or via an Internet job board that specializes in executive and professional candidates.

You might also try conducting a search through a professional business or trade association. Or you could try recruiting someone from a competitor, assuming you can do so without creating an undue amount of animosity among the parties involved.

Yet another option is to work with an executive search firm, which also will help screen candidates. Carefully choose and communicate your criteria — and the reasoning behind them — to the recruiters conducting the search. With good direction, they can often unearth some remarkable candidates.

The Right Stuff

At the end of the day, any successor — whether family member, nonfamily employee or external candidate — must have the right stuff. He or she needs to be passionate yet diplomatic, competitive yet rational, and an effective communicator yet a good listener.

The person who fits this description could be anywhere. Take the time to find him or her and groom this individual appropriately, and you’ll go a long way toward helping your company continue to succeed for many years after you’ve left it.

related links

International Tax Services

Newsletters and Articles

Wealth Management

Track your Refund

Tax Rates

Tax Tools and Calculators

Resources