Succession starts with a process manual
Family businesses plan succession around shareholding and wills. The harder problem is that the business runs on what one person knows. How to get that knowledge out and written down.
When owners of family businesses talk about succession, the discussion is usually about ownership: who gets which shares, what the will says, how the property is divided. These matter. But a business can pass smoothly on paper and still falter, because the person who knew how it worked has stepped back and nobody else does.
What the owner actually does
In most owner-run businesses the founder carries a long list of unwritten responsibilities:
- deciding credit for each customer from memory of their payment history
- knowing which supplier will deliver on time and which needs chasing
- setting prices and discounts case by case
- approving every payment
- handling the bank, the landlord and the key customers personally
- knowing which statutory dates fall when
None of this is in a document. It is judgement built over twenty or thirty years. A successor, whether a family member or a professional manager, inherits the title without the information.
Three questions to test readiness
- If the owner were unreachable for a month, which decisions would stop?
- For each of those, does anyone else know the rule the owner applies?
- Is that rule written anywhere?
Most businesses find that the answer to the third question is no for almost everything.
Building the succession file
The aim is to turn personal judgement into something another person can apply. It is done in stages.
List the decisions. Over a few weeks, record every decision and approval that comes to the owner. The list is usually longer than the owner expects.
Write the rule behind each one. "We give 30 days' credit to customers with two years of clean history, 15 days to new ones, and advance only for anyone who has bounced a cheque." Most judgement can be expressed as a rule with a few exceptions.
Decide who can take it. Routine decisions are delegated now, with limits. Larger ones are shared with the successor, who decides while the owner reviews. A few stay with the owner until the handover.
Document the processes around them. Order handling, purchasing, payments, payroll and month-end reporting each get a short written procedure with named roles.
Record relationships and commitments. Key contacts at customers, suppliers and banks, informal understandings, pending disputes, guarantees given, and where important documents are kept.
Hand over in steps
A good handover is gradual. The successor first observes, then decides with review, then decides alone and reports. A delegation-of-authority matrix that changes every six months makes this visible to employees, who otherwise keep going to the founder out of habit.
Benefits before any succession
The same documents help in ordinary times. The owner can take leave. A senior employee's exit is less damaging. Banks and investors are more comfortable with a business that does not depend on one person, and a buyer will pay more for it.
Start early
The right time to begin is when the owner has no plan to step back. Extracting thirty years of knowledge takes a year or two of unhurried work. It cannot be done in the weeks after a health scare.
This article is general information as on the date of publication. Law and practice change, and the facts of each business differ, so please take professional advice before acting on it.