One of the toughest questions for an owner to answer is “How do I know when the next generation is ready?”
Transitioning a business to a new owner is a very difficult and time consuming process once the new owner has been identified, but how do you know that new owner is ready to take the reigns?
A key ingredient for knowing when the next generation is ready is when that next generation begins to step into the leadership role within the organization so that everyone in the organization now begins to look at that person as opposed to looking to you for the answers. One of the biggest components of leadership is to provide direction for the organization. If a leader is able to clearly and succinctly define a direction for the organization that is both understandable and exciting, people will want to follow.
Many transitions in private companies include the current owner being bought out over time, very often with these funds coming from the business itself. Because of this, if you’re the current owner, you will not be willing to give up the reigns to the next generation until you have utmost confidence that the company will not only survive, but thrive under that new leadership (you will be putting your money where your mouth is after all!). Here are the top 4 things you should look for to to know the next generation is ready:
1. the next generation can summarize in 1 minute or less where the business is going in the next 10 years and do it with enough passion and excitement to get both you and the employees pumped up about it.
2. the next generation is able to articulate a coherent plan for how the organization will continue to generate salesfor the company’s products or services.
3. the next generation should be given the chance to show they are able to hire and retain good people and when the need arises that they are able to let go of people who are underperforming.
4. the next generation can present the company, which will include presenting the most recent financial statements of the business.
While you will never know for sure if the next generation is ready until they actually take over, if these four things are all present, you as the current owner will have a significantly higher likelihood of having a successful transition to the next generation.