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November082022

Guidance For Transitioning Your Manufacturing Business to the Next Generation

Marcy Greenfield, CPA

11.8.22 | Industry Insights

Succession planning for family-owned manufacturing and distribution companies can be an arduous task, especially if the company also employs non-family members. These situations typically add an additional challenge when it is time to transition the business to new leadership, making it essential to properly plan for succession in order to achieve the ultimate goal—a smooth, successful succession.

Some tips and best practices that current and next-generation leaders can implement to help ensure a seamless management transition include:

Prepare the Business For Succession

It starts by making sure all stakeholders have a clear financial picture of the family business, so they fully understand the organization’s culture and how it operates. Building and supporting a culture where everyone understands that they are a vital part of the organization is an important component for a healthy and seamless transition. Once established, all current and future leaders should lead by example to reinforce the culture as well as demonstrate fiscal responsibility and an understanding of the organization as a whole.

It is also recommended that before developing or implementing a succession plan, leaders should seek out guidance from professional advisors or peers who have experience with succession and transition. Being aware of typical mistakes made and best practices for success will help leaders plan more effectively and eliminate surprise challenges that may occur. In seeking out advisors, make sure they have substantial succession planning experience. Remember that it is never too soon to prepare for succession, but it can be too late, which can have consequences.

Nurture Family Members

While the leader of a business should not pressure children or family members to join the business as they pursue their education and professional careers, they should make them aware of the many opportunities that exist within the business. It is important that the older generation gives the next generation the freedom to grow. Here are some tips:

  • Allow the next generation to pursue advanced degrees as well as positions outside of the family business. This allows the younger generation to gain experiences and knowledge they can transfer to the organization.
  • When they enter the organization, have them start from the ground up to develop empathy for employees who are not in leadership roles.
  • Have the next generation work in multiple departments to learn and understand all aspects of the business and how it functions in a real-world environment.
  • Leverage the next generation’s unique knowledge of technology, artificial intelligence, and industry trends to help shape the future of the organization.

Pay Attention To Valued Non-family Team Members

It is rare for a family organization to only have family members occupying all management roles within the business. Given this, it is essential that key non-family members are embraced and trusted as well as leveraged for their experience and knowledge to help the business and the next generation of family members grow and succeed. Being open to non-family members in key positions may help put the company in a better position by opening the business to professionals who have more experience and add different perspectives. This can bring new vitality to the business and help groom the next generation of family leaders.

Lay Out Pathways To Success for All

The business’s future success will depend on a team of players working together for a common goal. To help ensure that they will be satisfied and motivated, here are some ideas:

  • Present a career path with an established timeline for all employees
  • Be open-minded to new ideas and changes to allow employees to have some influence and further enable the business to flourish.
  • Create a compensation structure where the entire leadership team, family and non-family members included, are equitable and allow everyone to work towards the same objectives for the company.

It’s Never Too Soon to Start Planning

Every family-owned manufacturing and distribution business is different, and building a successful and efficient company takes time. Thus, when the time comes to transition the leadership to the next generation, considering the best practices listed above will allow for an easier, less stressful, and ultimately more successful succession.

Transitioning a business is a process with many facets. While it can be imposing, with proper advanced planning and a trusted and effective team, a well-thought-out succession plan can reward business leaders with the confidence that what they have helped build over the years has a bright future.

If you have questions, contact Marcy Greenfield at 516.806.3425 | MGreenfield@berdonllp.com or your Berdon advisor.

Berdon LLP New York Accountants

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