There’s one thing I know when it comes time to transferring ownership in a family owned business. It’s that you want to have a smooth transition between generations. This is part of what having a sale ready business means. With a sale ready company an internal change of ownership happens and there is no drama around the ownership transfer.

When it comes to training the next generation of owners, there’s a strategy I love. I call it the leapfrog management system and that’s what this week’s video is all about.

Transcript

There’s one thing I know when it comes to transferring ownership in a family owned business. It’s that you want to have a smooth transition between generations. This is part of what having a sale ready business means. With a sale ready company an internal change of ownership happens and there is no drama around the ownership transfer.

When it comes to training the next generation of owners, there’s a strategy I love. I call it the leapfrog management system and that’s what this week’s video is all about.

One of the most challenging things a parent ever has to do is transfer the ownership of their business to their children. There are tons of reasons for this, and here are some of them.

  • You remember what your children were like when they were young.
  • You think that all the mistakes they made growing up will happen over and over again in your business.
  • You’re not sure why you want your financial future tied up with your children’s ability to run the family business.
  • Or you’re not sure whether your kids really want to be in the business in the first place.

I could go on and on and on and on, but you get the gist of it.

This is exactly the topic I’m tackling in my new book, yet unnamed book. I’m trying to help you understand what goes into a family transition and what steps you need to take to have a family transition that’s successful, and one that you’re really happy with.

So let’s go into what a leapfrog management system really is where you can avoid some of the main fatal mistakes I see made over and over and over.

  1. The first thing is, the rising family member is not supervised by their parent. This is a really important thing. Instead you wanna have one of your senior managers be the supervisor for your child, or the appropriate manager with the, whatever job they’re doing.
  2. As your family member learns more and more, eventually they’re gonna have a senior position in your company where they’re gonna report to your most senior person in your company. In other words, they will likely end up reporting to whoever your chief operating officer is in your organization.
  3. The family member will report to structure to a non-family member who acts as their mentor. This is again really important. That COO has to be able to mentor in a rising generation. So there’s somebody there who’s not a family member that can help this person learn what they need to do to be successful as the CEO of your company. The next CEO of your company.
  4. And number four, eventually, the positions switch where the family member becomes the non-family member’s, senior member’s, boss. So in other words, your family member, your child is reporting to your COO. You might kick yourself upstairs and become chairman, and they’ll become the CEO. Your COO is now gonna report to them. Sounds a little a little bit complicated, but it really isn’t. All it is we’re just switching positions is that I’m reporting you to one day, and then the next day you’re reporting to me.
  5. Now, that senior manager stays as a mentor to the junior manager. They should have built a great relationship by the time this change happens. And if they haven’t build a great relationship, you have some problems along the way that need to be fixed. So they’re gonna help them think about the problems of being a new owner because you’re gonna have being, taking a step back and become completely operationally irrelevant. You’re gonna have very, very little to do with the family business anymore.

So here are four things that happen for the senior family member.

  1. Number one, because the senior family member is out of the loop, they are becoming operationally irrelevant. A need for any sale ready company.
  2. You’ll have a chance to see how effective your children are. You do not wanna be turning your business over to your child if they’re going to ruin it, especially if they’re gonna owe you a whole lotta money that’s what your retirement depends at.
  3. Number three, you won’t be emotionally involved when your child makes mistake. Now we’re want our children to do the stuff right. And sometimes we get a little embarrassed when they make a mistake. Well that manager who your child is reporting to, won’t have that same problem because not gonna the baggage of having grown up with that child over years and years and years.
  4. And then number four, you get to see if the business will have the financial performance that will allow you to sell it to your children. You can’t sell your business to your children, unless it has the financial performance that will be guaranteeing, or pretty close to guaranteeing, ’cause you’re gonna get paid what you need to have for your retirement.

So here are three things I want you to do in putting together a leap frog management system.

  1. One, make sure your child does not report directly to you.
  2. Two, make sure you don’t expect everything to be done the way you would do it. They’re going to do it differently. It might be better, it might be the same, it might even be a little bit worse. But it will be definitely different.
  3. And number three, download our free book on eBook on relationships and roles in your business. This is gonna show how you go through the roles in building the business, and eventually transition out of it. It’s a really good eBook and something I find that’s really useful.

Now when you do this, you’ll start seeing your business move from one, you’re not sure you can leave to one that is sale ready and your family can take it over, if they choose.

This is Josh Patrick. You’re at “The Sustainable Business.” Thanks a lot for stopping by. I hope to see you back here really soon.

Topics: Video, Sustainable Business, family business, transferring ownership, ownership transfer system, leapfrog management system, relationship and roles in business

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