Hey now, welcome to another edition of the Inside B.S. Show. I am Dave Lorenzo and this is show number 794. Today's show is all about the five things every family business CEO should know before doing succession planning.

So here's the thing. If you're a family business owner, you may not have given any thought to what happens after you decide to pass on the torch to the next generation. But succession planning is so much more than that.

Family business owners think that succession planning and exit planning are the same thing. And they really aren't. Succession planning is thinking about the key leaders in your organization.

So who the leader of your finance division is. Who's your CFO right now. Who's going to replace the CFO if they decide they want to retire.

Who's going to replace the CFO if they resign and find another job. Who would take over for the CFO if he or she had to leave for three to six months because they were ill. Or if someone in their family was ill.

That's what succession planning is. You need to have someone in line for the chief operating officer role. Your role as CEO.

The CFO role. The head of sales and marketing. You need to have people in line for each of those positions.

And you need to be thinking about who the next up would be if those people had to step out of the business temporarily or permanently. So here are the five things you should think about if you're the CEO of a family business and you want to get succession planning right. The first thing you should think about is you should think that succession planning is not just retirement planning.

Succession planning is about planning for contingencies. So if somebody is sick. If somebody needs to take time off.

If somebody needs to be out of the business for a short or a long period of time. Who's the next person to fill that role? What is the job description like? What are the core competencies? And who's the next person that could fill it? When it comes to your role as the CEO of the family business. Who's the person that could step in and make the day-to-day decisions for your business? And who's a person that could do the long-term planning for your business? Every leader in your business should plan for their own replacement.

That's what succession planning is. Part of the review for everyone in a leadership role in your business should be how easily they can be replaced by their number two. That should be 20-30% of the leader's review.

How well is the next person in line prepared to take over? And this should be something you're thinking about as the CEO as well. Now, the second thing you should think about in a family business when it comes to succession planning is that family relationships complicate succession planning. If you have in mind that the next in line for your job as CEO will be a family member, that family member better be more qualified than anyone else to do the job.

This means that they will probably have held one or more roles in leadership in the company. So the family member that takes over for you as CEO needs to know operations inside and out. They need to know sales inside and out.

They need to know finance inside and out. And if they don't have experience in all three of those, they at least need to be conversant in all three of those areas. So family ties can complicate succession planning and it's up to you to make sure that the people who are next in line to replace you, if they're part of your family, have earned the right to make those decisions.

They can't just be born into it. Think about a king versus an elected leader. The elected leader comes from the people and they have to have earned their stripes.

They probably held offices below the most senior level office. A king ascends to the throne because of their bloodlines. You don't want to replace yourself with a king.

You want to replace yourself with someone who has earned, in everyone's eyes, the right to be there. The third thing you need to think about when it comes to succession planning is culture. In a family business, you don't just pass on the leadership reins and the mantle of leadership.

You also pass on the person who leads the culture of the organization. So the person who takes your place as the CEO should be the most empathetic person in the company. Why? Because since you've started the company or since you've led the company for a long period of time, most of the people who've joined the company respect you because you were there when they were hired.

The person who's coming in behind you is going to be, at some point, the newest person in a role in the company. Even if they were with the company for 10 years, they're going to be brand new in their new role. So they're going to have to earn the right to lead.

This means listening. This means being empathetic. It also means connecting with people at a visceral level and leading from within, leading from the front, leading from inside the team and being one of them as well as the leader of them.

And that means that they have to be immersed in the culture and want to keep the best parts of the culture going. So when you're thinking about succession, whether it's for your role as CEO or for the CFO or Chief Operating Officer or Head of Sales, you need to think about the culture of each of those areas and make sure that the next person in is going to strengthen the culture and not destroy the culture in any way. The fourth thing you should think about when it comes to succession planning is for you specifically as the CEO and owner, the tax implications.

There are tax implications for you personally, there are tax implications for the company, and then there are tax implications for the person that takes over after you, especially if it's a family member. You want to connect with an estate planning lawyer, you want to connect with an estate planning, you want to connect with a tax accountant as well, and you want to look at the implications of you divesting yourself of any interest in the company because there's tax implications to that. There are some things you can do here in the United States within the tax code that can really shield you from tax consequences of selling your shares in a company, but you have to plan at least five years in advance for that.

I highly encourage you to join us here on the InsideBS show on Mondays when we meet with Harry Sandrowski. This is what he does. He helps business owners mitigate the tax consequences, minimize the tax consequences of selling their shares in a business.

You need to listen to him, you need to find your person to help you think this through because succession planning has tax implications. Fifth and finally is communication. Transparency among your leadership team is essential for good succession planning, so you need to have conversations with everyone on your leadership team about what the succession planning process looks like and the reviews that they're doing with their employees should include getting them ready for their next potential role and your job is to get everyone ready to fill the gaps that you may leave behind if you decide to take a week off, a month off, a year off, or if you decide to step down from the company altogether.

Succession planning is not necessarily exit planning. It is contingency planning for the next up in each role. It's also planning for the future to fill any talent gaps that arise.

We are here every single day with a brand new episode of the Inside BS Show every morning at 6 a.m. on YouTube, every morning at 6 a.m. on Spotify, every morning at 6 a.m. on Apple Podcasts, and wherever you get your podcasts. Do us a favor. Subscribe to the show by going to getinsidebs.com, getinsidebs.com. You can get a daily email with the updates right there.

I'm Dave Lorenzo. We'll see you back here again tomorrow.