Running a Family Business Means You Need to Prepare Your Kids to Take Over — Here's How to Do It Right. Planning to pass on your business to your kids? Preparing them for the next phase of your business is a complex and multifaceted process — so here's what you need to do.

Succession planning in family businesses is a topic that often evokes mixed emotions. On one hand, it represents the continuation of a legacy, while on the other, it can be a source of anxiety and uncertainty. Anyone who has seen the HBO show Succession can attest to the roller coaster of emotions that takes place. Preparing your children for the next phase of your business is a complex process that requires careful consideration, communication and planning. In this article, we'll explore the key steps involved in helping to ensure a smooth transition of your business to the next generation.

One of the critical mistakes many family business owners make is waiting too long to initiate succession planning. Ideally, this process should begin years, if not decades, before you intend to step down. Early planning allows you to identify and address potential challenges, ensure your children are adequately prepared and create a transition that is as seamless as possible.

Related: 1 in 10 Leaders Say Succession Planning Is Not Worth the Time and Money It Costs — Here's Why They're Wrong.

Start with open and honest communication

According to the Family Business Institute, only about 12% of family businesses survive into the third generation. One of the major reasons is lack of communication.

Effective communication is the cornerstone of a successful succession plan. Begin by having open and honest conversations with your children about your intentions and expectations for the business. These discussions should be ongoing and involve all relevant family members, including those who may not be directly involved in the business but could still be affected by the transition.

Encourage your children to express their own aspirations and concerns. Listen carefully to their input and be willing to adapt your plan based on their feedback. This collaborative approach can help build trust and ensure that everyone is on the same page.

Identify and develop key skills

Once you've established open communication, it's essential to assess your children's readiness to take over the business. This assessment should go beyond their desire to be involved and focus on their skills, knowledge and experience. Consider the following questions:

1. Do they have the necessary education and training? Ensure that your children have the qualifications and capabilities required to run the business successfully. If not, provide opportunities for them to acquire the necessary skills.
2. Have they gained relevant work experience? Working outside the family business can provide valuable insights and experience that can be beneficial when they eventually take the reins. A lot of family businesses require their children to work for other companies before they can join the family business. This gives the children a better perspective of working for others and also, they can gain industry knowledge to help the family business.
3. Are they familiar with the industry? A deep understanding of your industry, market trends and competition is crucial. Encourage your children to stay informed and engaged in industry-related activities.
4. Do they possess leadership qualities? Effective leadership is essential for running a business. Assess your children's ability to lead and manage teams, make tough decisions and handle the challenges of business ownership.
5. Are they financially responsible? Ensure that your children have a good understanding of financial management, including budgeting, financial forecasting and risk management.

If your children lack certain skills or experience, consider providing them with mentorship, additional training or opportunities to work in different roles within the company to develop their capabilities gradually. Once you feel that they are ready for the next step, it's time to create a plan of action.

Related: 4 Lessons on Succession Planning for Entrepreneurs

Create a clear succession plan

A well-defined succession plan is a roadmap for the transition of your business. It should outline the specific steps and timeline for transferring ownership and leadership roles. Your plan should address key aspects such as:

1. Leadership transition: Specify when and how leadership responsibilities will transfer from you to your children. Be clear about who will take on which roles and how decisions will be made during the transition period.
2. Ownership transition: Determine how ownership shares will be transferred and at what price. This may involve discussions about equity distribution, buy-sell agreements and estate planning.
3. Training and development: Outline a comprehensive plan for developing your children's skills and knowledge in preparation for their new roles. Consider creating a structured training program or providing access to external resources.
4. Conflict resolution: Anticipate potential conflicts that may arise during the transition and establish a process for resolving them. This can help prevent disputes from escalating and jeopardizing the business.
5. Contingency plans: Prepare for unforeseen circumstances by developing contingency plans. What happens if one of your children decides not to join the business? How will you handle unexpected challenges or changes in the market?
6. Legal and financial considerations: Consult with legal and financial advisors to ensure that your succession plan complies with all legal requirements and minimizes tax implications.

Seek external advice

While family businesses often benefit from maintaining control within the family, seeking external advice can be invaluable during the succession planning process. Consider involving professional advisors, such as lawyers, accountants, financial advisors and business consultants, who specialize in family business succession.

These professionals can provide objective insights, help navigate complex legal and financial matters and offer guidance on best practices. Their advice can be particularly useful when dealing with sensitive issues like estate planning and tax implications.

Gradual transition and mentorship

A successful transition doesn't happen overnight. It's often best to implement a gradual shift of responsibilities and ownership over a period of time. This allows your children to gain practical experience and gradually assume greater leadership roles.

Mentorship plays a crucial role in this process. As the current business owner, you can provide valuable guidance, share your knowledge and insights and help your children develop the confidence and skills necessary to lead effectively. Encourage them to take on increasing responsibilities and decision-making authority as they demonstrate their readiness.

Related: Succession Planning: It's Never Too Early to Start Thinking About the Future of Your Business

Monitor progress and adapt

Once the succession plan is in motion, it's essential to regularly monitor progress and be willing to adapt as needed. Keep the lines of communication open with your children and other key stakeholders. Periodically review the plan to ensure it remains aligned with the evolving needs of the business and the capabilities of your children.

Be prepared to make adjustments if unforeseen challenges arise or if your children's interests and abilities change over time. Flexibility is a key factor in ensuring a successful transition.

Preparing your children for the next phase of your business is a complex and multifaceted process. It requires early planning, open communication and a clear succession plan. By assessing your children's skills, providing ongoing mentoring, seeking external advice and gradually transitioning leadership and ownership, you can increase the likelihood of a smooth and successful handover. Remember that a well-executed succession plan not only secures the future of your business but also helps to preserve the family legacy for generations to come.