Succession planning can take the form of family succession or passing management to a key employee or partner. In both types of succession it is important for the entrepreneur to begin planning for succession and, preparing the successor, as early as possible for the transition of the role of primary manager (Henricks, 2009). The process of passing control to another person takes a significant amount of time and creates certain stresses inside the firm itself.
Lifestyle entrepreneurs who have maintained the family focus of their business operations often plan to transfer their business to their children. Planning for the family to succeed the entrepreneur in the business is often a difficult undertaking. The process of passing the business to children or other family members may create rifts in the family regarding the fairness of wealth division and the roles of leadership within the firm (Robbins, 2009). The transfer of ownership allows the founder to exit the daily operations of the firm, but not necessarily to relinquish ownership (Faley, 2006).
It is important to involve the successor in the decision process and gauge their interest in running the firm. After the successor is chosen and his/her interest is confirmed he/she needs to be groomed for their role in the firm (Wallace, 2003). The grooming of a successor should begin several years before the anticipated transfer of control, in order to ensure that knowledge of systems and procedures are passed along, as well as develop the skills of strategic planning, maintaining controls and delegation (Faley, 2006). This gives the successor the opportunity to adjust to the business and the employees the ability to develop familiarity with the prospective new manager. Additionally, a team of key managers, the firm’s legal counsel, and the firm’s accountant should be assembled to aid in and ease the transition process (Fraser, 1996).