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When Gloria Sendejo started her party rental business, she was excited to be able to say she was a small business owner. But even more importantly, she looked forward to one day handing her business down to one or more of her five children.
That transition may have seemed far in the future since Sendejo's children were all under the age of 10 when she launched the business in 2015. Still, she knew that if she wanted to build a sustainable business and eventually hand it off to them, she needed to start developing her succession plan early.
What is a succession plan?
A succession plan is a CEO or business owner's blueprint for developing leaders and stakeholders within a company so that they can hand the business on to qualified individuals upon their withdrawal or retirement from the business.
A successful succession plan anticipates transitions of roles and leadership long before those transitions actually occur. In her business, for example, Sendejo says, "all of my kids help out now. Even though they're young, they're already learning the ropes."
How do you make a succession plan?
It's easy for succession planning to get lost in the acute demands of day-to-day business, but it's important to think ahead, says Olga Camargo, Co-Head of Faro Advisory, LLC and Partner at Toroso Investments. "You can't wait until the year before you want to retire to have conversations about succession," Camargo says. "These have to be early and ongoing conversations."
Hispanic small business owners wishing to eventually transfer their business to a group of trusted employees—or to members of their family—can take some tips based on Sendejo's experience and Camargo's expertise advising Hispanic small business owners who want to pass their business along to the next generation.
1. Understand that succession planning begins with you
Whether in the office with your employees or at home with your children, future inheritors of your business are looking to you to set an example. Your words and actions set the tone for the business, establishing and enforcing your expectations and values. Cues that future owner(s) of your business take from you will help ensure continuity for the business itself.
The example you set starts early, Camargo notes. "Be courageous: Let your kids get an inside view into your business as early as possible." As Sendejo has done with her children, find age-appropriate ways to introduce them to the idea and the day-to-day tasks of business ownership.
2. Develop a timeline
Your timeline doesn't have to be set in stone—it can change over time as your business, the market, and your successors evolve—but by developing a timeline for the handover of your business, you can create short- and long-term objectives that will set up the eventual transition for success.
Camargo suggests that parents who want to hand a business over to a child or children begin having conversations with them about that idea no later than high school.
"As soon as kids find out that they're being considered to inherit their parents' business, some don't want to do it," she says. "This is a reality. It's important to talk about succession early and often. Second-generation kids saw their parents work so hard. They saw the sweat equity. They may aspire to do something that doesn't require as much work. This is a #1 issue, and it can't be ignored," Camargo urges.
3. Create concrete plans
At its heart, succession planning is about developing other people's potential for leadership. To this end, it's important to create specific, goal-oriented opportunities for prospective successors to grow as leaders early on in their development.
For kids like Sendejo's, this might mean learning how to save and budget. For existing employees, that might mean tasking them with greater responsibility, providing them with leadership training courses, and talking with them at annual performance reviews about their long-term goals with the company.
4. Don't forget to transfer key information
Preserving and passing down institutional knowledge is an essential part of the process of developing and executing a succession plan. "If you're a minority- or woman-owned enterprise business, there's more work," Camargo warns. "If you have either of these designations, then there are contracts in place, and you have to ensure that the next person who gets the business gets those same certifications and contracts. Ensuring a smooth transition requires that you have an entire team in place, especially attorneys, who can advise you appropriately," she suggests.
Sendejo agrees, adding that it's important for business owners to think about and plan for these concrete aspects of succession. As just one example, she mentions the fact that she has a will. While her kids' roles in the business are mostly fun and are intended to expose them to the workings of her small business, she knows that what Camargo says is true: businesses that transition successfully to the next generation need tangible documents and plans to guide them through that process.
The key, Camargo says, is to have open lines of communication. Talking about succession can be difficult because it touches on all the taboo topics, including death and money. She suggests building a team of experts around you to help make these conversations and transitions easier, drawing out the concerns and hopes of every stakeholder.