The more and more I get asked to help companies straighten out, systematize, or simply review their financials, the more I get asked questions that aren’t directly related to finance. This shows me that business owners, once they feel confident and comfortable that their financial concerns are being addressed, have the bandwidth to take the relationship a little deeper. Specifically, the conversations have begun to get into strategic planning, which is where we should be spending our concentrated efforts on. This is how successful business leaders and industry giants got to where they are; they’re able to balance the needs of the day-to-day operations while tackling the big, forward-thinking topics that are concerns of tomorrow. 

I’ve had the opportunity to work through a number of succession planning sessions and take the business owners from the start all the way through their transitionary period. Companies that are in a variety of industries, have varying revenue levels, and some with big teams and small teams. What they all have in common is this: they want to be leaning into the proactive aspects of their business. Said another way, they want to be more strategic with some long term business planning. They want their carefully crafted teams, valuable vendor relationships, and lucrative contacts within their clientele to be shepherded in the same way that they always have. They’re willing to take the time to be thoughtful about the process of getting their son or daughter up to speed, with all the knowledge needed to run the business for decades to come. 

But, the same question keeps coming up. What is the best way to prepare my son or daughter to run the company so I can step away? While the answer isn’t quite as straightforward, and the action of “stepping away” doesn’t always look the exact same, the approach is to think about the process in steps. As with any seasonal change, there are indicators and proactive steps one can take to be as prepared as possible.

When I was meeting with a group of business owners at a workshop on Next Generation Leadership, I presented these 7 steps to preparing the next generation to run the company. I wanted to give you the inside-scoop, the secret sauce, peel back the curtain so you can meet OZ. If you’re considering, at any point in your business’s future, of having your son or daughter work in your business or even run your company, you need to start thinking about these steps.

Here they are:

Step 1 – Get them to work in the business

It might seem simple, but many parents that are running their businesses haven’t done this step yet and think their son or daughter will intrinsically learn or pick up things extremely quickly, perhaps through osmosis. That’s not how knowledge transfers work. It takes time and repetition.

Having them work in the business also allows them the ability to discern if this is really what they want to do, professionally and relationally. There’s a chance they get into the business and find that it’s just not for them.

Step 2 – Have them work with your advisors

When it’s appropriate, have them meet with your trusted advisors one on one. This would be your accountant, your business advisor or coach, your attorney, or anyone else that you have sought out to get professional advice from over the years. This process gives them the opportunity to make decisions for themselves, think independently, or make judgments about the type of people they may choose to retain after a transition occurs. It also allows your trusted advisors to give you honest feedback about the type of professional you’re considering handing the business to at some point.  

Step 2b – Have them find their own advisors

During the workshop I mentioned, I was asked what should happen if the son or daughter doesn’t like working with the advisors the parents have used. Do they have to work with them? What happens here? While I can see some overbearing parents demanding that their son or daughter use the advisor they have in the past, there is something to be said for seeking out a different viewpoint. Perhaps a fresh look at the business could bode well for strategic planning. Additionally, relationships need to jive and sometimes a son or daughter just wants to work with someone they may feel comfortable talking to and that might not be the person their mom or dad has.

Step 3 – Pay them fairly and in alignment with business operations

I’ve met too many business owners that pay their kids inflated salaries or above market wages. One such instance, the parent confided in me that their son had never worked anywhere else and needs to make the $200,000.00 salary afforded him. When I pushed back on the size of the salary – I thought, for the job he was asked to do and, considering his background, that $90,000 plus bonus potential that aligns with business profitability – was told he needed to make that much or he’d go work somewhere else. Is that really the kind of mentality your son or daughter should have? Said another way, would you allow any other employee of yours to maintain that mindset while your company’s profitability isn’t aligned with their compensation model? 

When you align your company’s profitability with the compensation model of your son or daughter, you give them a glimpse of the financial rewards and pain that it takes to sustain a growing business.

Step 4 – Give them homework

I don’t mean homework in the sense of memorizing the mission statement and any other key principles of the business. Hopefully, they’re able to do this without you asking. If not, it might be a sign to reconsider your steps. In this step, the homework could be assignments that force the next generational leader to work with other team members on new strategic initiatives under your watch. Don’t micromanage. Instead, cast a vision and see how they embrace the challenge. This could be implementing some policy and procedure changes, installing a leadership meeting for the division heads, or conducting an employee engagement survey followed by providing an action plan to address the needs and concerns of the staff.

Make sure, when you work on this step, that you’re mindful of their quickness to make decisions, the delivery of any information, and their mindfulness to the finances of the business. These are all key leadership skills that your homework assignment should test and showcase.

Step 5 – Encourage them to read

I’m not talking about reading the employee handbook here. Encourage them to read some of the foundational business books that you read while building your business. My suggestions are always these three books:

1. Re-Invents the Selling Process, by Jacques Werth
2. The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, by Michael Gerber
3. Traction: Get a Grip on Your Business, by Gino Wickman

Some other recommendations are Good to Great by Jim Collins, Start with Why: How Great Leaders Inspire Everyone to Take Action by Simon Sinek, and anything by Patrick Lencioni or Malcom Gladwell. One book a quarter is a good starting point.

I always get asked if the son or daughter needs to be paid to read… I have to shake my head. Did anyone pay you to read books when you started your company? Probably not. My recommendation is to NOT pay your son or daughter to read business books. If they don’t see the value in reading them without getting an immediate financial benefit, they’re thinking way too short-termed to lead your organization.

If they push back too much on reading, you may need to really ask yourself what kind of leader they’re going to become if they don’t embrace continual learning.

Step 6 – Invite them to participate (not just attend) strategic planning meetings

A good step to consider before this one is ensuring you have a strategic plan in place first. They will have already observed your strategic planning process and made their own assumptions. However, to continue the success you’ve brought to the business, they’ll need to conduct, lead, and follow up on Strategic Planning Meetings. It’s not a time for them to talk the entire time either. It should be important that they have, or will develop, the skill of inciting thoughtful input from the leadership team.

Seeing them in action in this step will tell you a lot about the type of leader they will be when you’re not there.

I’m not saying you just hand over the entire strategy meeting to their agenda either. You should bring them in slowly. Give them an assignment (step 4) and then ask them to report their progress during the Strategic Planning Meeting and include a report of how their assignment will impact the business’s financial outlook and when.

Step 7 – Ask them questions to challenge their thought process

Someone needs to challenge them. If you don’t feel like you can do it, then find a consultant or an attorney to ask them the tough questions. Asking questions and challenging a thought process is simply the only way to refine it and make it better. This step shouldn’t be done with sarcasm or nastiness. Instead, it should be done through the lens of seeking to understand their decision making abilities, their strategic objectives, and internal prioritization. 

At the end of my workshop, I asked the participants if they’d be willing to complete a brief survey. The survey included a section that allowed the participants to list any steps they thought I may have missed. I’ll ask you the same question. When you’re considering taking steps to prepare the next generation to run the company, what steps do you think are necessary?