3 easy steps for small business owners to start succession planning
Who will take on your business? It’s a question many experienced entrepreneurs must wrestle with to keep their business and family legacy alive. Here are a few ways to start.
Pioneer Linens has survived hurricanes, recessions, and a seasonal economy for four generations. While beachy weather has come and gone in that time, someone from Penny Murphy’s family has remained at the helm of the fine linens retailer in downtown West Palm Beach, Florida, for more than 111 years.
Longevity is a hallmark of many family-owned small businesses, but it takes planning. Deciding who succeeds in leading the enterprise and how they do it are critical to continuing the founder’s entrepreneurial legacy.
“I believe my children are as committed to this business as my father, my grandfather, and I have been,” said Murphy, owner and president of Pioneer Linens. “We have a beautiful store and a beautiful product, and we’ve worked hard to earn a good reputation. I think they’d be happy to [take it on].”
Here are three succession planning tips for family-owned businesses — or any small business looking to foster future leaders and extend its life.
1. Define job roles
The first secret to working alongside any loved one is defining roles and responsibilities. When it comes to succession planning, that may be an ongoing conversation, as a suitable heir or heirs take on more authority, grow their skills, or form their own life goals.
Clear communication won’t just prevent headaches, it will support your succession plan. Ask yourself: What does the next generation bring to the table and what experiences do they need for future leadership? Build a timeline of potential advancement from there.
“If you don’t define roles, you’ll never be able to ascertain who is truly ready to take on the business,” said Bob Marshall, a national business development executive with Wells Fargo’s Small Business Development Group. “Some people are good at business development. Some people are good at finances. Some people are good at operations. But the next leader must know all three to run the business.”
While it was important for Murphy to let her kids forge their own paths in life, when they eventually wanted to join the family business after graduating college and starting careers, she created positions for them based on the company’s needs, mainly sales and operations. Over time, her two daughters have found ways to step up, such as becoming a buyer and creating a private label, Pioneer Linens Signature Collection. Growing their web presence with social media was also necessary.
“Part of why a business is going to succeed is how creative that next generation is,” she said.
2. Use outside experts
When love and money mix, conflict is often a concern. A third party can step in to alleviate friction, draft a formal succession plan, or coach a next-generation business owner. Just be intentional about who you’re talking to and why.
Your business banker can help, though they may be limited to working with authorized representatives. And your company’s lawyer may only represent the business, the CEO, or certain leaders. Depending on your business, a financial advisor, succession planning consultant, or estate planning professional may be able to holistically address your needs and those of your family and your business.
“You need people who don’t have skin in the game,” Marshall said. “This is not a legal matter, necessarily. It’s organizational. It’s a personal matter.”
Murphy has worked with an attorney on a potential succession plan and a business coach to help her family through challenging times.
“There are so many variables right now as to what’s going to happen [with Pioneer Linens] and what [my daughters] want to do,” she said.
3. Create a plan together
Making a succession plan can be tough. It can cause conflict or force tough family or money conversations, Marshall said, but the work can be worth it.
By making sure your wishes are enacted after you step down or pass on, a formal succession plan guides your business through a transition and extends its life. Yet only about a third of family-owned businesses have a “robust, documented, and communicated” succession plan, according to a 2021 PWC survey.
“What happens to [the rest]? They may die out because there’s no plan,” Marshall said. “Think of it like a will. It’s not important until you need it. If you put off creating that formal plan and committing it to paper, then you’re at risk of losing one of the most prized possessions of your life.”
When control of Pioneer Linens was quickly passed to her, Murphy didn’t have much training to lead the business. She was, however, inspired by a goal of celebrating the store’s 100th birthday to keep it running. Now, more than 111 years after it opened, Murphy is weighing paths forward. If she decides to pass the business on, Murphy has raised the fourth generation to be ready.
“I’m certainly confident that if I decided that I wanted to have them [take on the store], that they’d be incredibly successful at doing it,” she said. “They’ve learned a lot. They’re smart. They’re very hard workers and very dedicated. Not only that, but they have that pioneer spirit that is part of their legacy.”