A family business is traditionally passed down to children (the heirs) when the parents pass away. Rarely do we encounter family businesses having a CEO outside of the family. In that scenario, the business has usually been sold off, so the family members no longer have a stake in it.
But with a lot of millennials and Gen-Zers opting to live child-free, the cycle of passing down the business to heirs may break soon. If you’re facing the same problem — if you consider that a problem at all — then you have to ensure that whoever your replacement will be, he or she has to continue what you started. Not only that, but everything the generations before you have started.
Thankfully, a succession plan for a business without heirs isn’t as difficult as it sounds. The key is working with an estate planning attorney. Although your business’s assets aren’t included in your estate, its fate should be stated in your will. And that means as early as now, you should consider who the next CEO for your business might be.
The Difference of Passing Down a Business Without Heirs
Having no heirs doesn’t necessarily make succession plans harder than if you have heirs. What you might find challenging, however, is deciding what to do with your personal assets. You can pass them down to your relatives, but if you’d rather have other plans, then you have to be specific with them in your will.
For example, you can distribute all your money to charities, or build one under your name. If you support a certain cause, you can leave your legacy by starting a new charity dedicated to it. What’s good about this route is that you don’t have to wait for your passing before its establishment. You can start building your charitable organization while you’re still alive and healthy so that you can oversee its development. By the time of your passing, the charity is already stable and well-known.
A business, on the other hand, can be a little tricky to pass down. After all, even if you have no children, you may have nieces or nephews expecting a higher position when you pass away or retire. It’s a morbid thought, but one you really can’t deny.
There are also the shareholders and board of directors to consider. Chances are they’re expecting one of their own to take the CEO position after your passing or retirement.
To make the succession fair for everyone, you can opt for a buy-sell agreement. It is a contract that states how your shares to the business will be reassigned if you pass away or leave the company. If your business is a partnership, and you outlive your partner, you can use the proceeds of their life insurance to buy their shares, for example.
You can also sell your shares before your retirement if you want to enjoy your golden years without responsibilities. Any member from your board can buy them out. Just ensure that whoever the next chair will be, they’ll work on your business well. Better than you did, even.
Choosing the Next CEO
If there’s a specific person in mind when you think of your company’s next CEO, ask these questions before offering them the position:
- How much change does your company need?
Often, family members operate in the same leadership style. The current leader gets their leadership lessons from their predecessor, then imparts those same lessons to their hers. But since you’d be breaking this cycle, you have to acknowledge that a new CEO will bring about significant changes to your company.
If your ideal candidate can bring the change your company needs, then you’ve picked the right successor.
- How strong is the executive department?
A CEO isn’t required to have astronomical achievements nor years of experience under their belt. If your executive department is strong, even a young, inexperienced one can be fit for the role. On the contrary, if your executive team is weak, you have no other choice but to select an experienced successor.
- Is your candidate a boss or a leader?
Sometimes, we mistake an authoritarian leadership style to be a sign of competence. But that’s not always the case. A bossy type of leader tends to command through intimidation, while a true leader doesn’t even command, but rather, inspire. They can make people follow them without even trying.
Is your candidate a good listener, or do they dismiss ideas that aren’t their own? Are they calm during conflicts, or lose their temper and lash out? The qualities of a good CEO don’t include anything pompous and proud, so take note of that.
Your company deserves the best leadership you can promise. Even if you have no heirs, ensure that your family’s legacy will remain alive in your business.