Workaholic Walt has no interests beyond his business, so why should he set a retirement date? He works every Saturday, whether he needs to or not. During his rare rounds of golf, he obsesses about inventory, receivables and any conceivable disaster that might occur.
Florida Fred, by contrast, was cajoled by his wife into buying the condo in Sanibel. But Fred expects daily calls from the “kids” running the business back North, because deep down he fears they lack what it takes. Unable to stand the uncertainty, after three months Fred shows up at the office unannounced and takes over again.
Then there’s Worried Wendy, who spent a lifetime devoting herself to her family and the business she inherited from her father, now worth about $3 million. On the advice of her financial planner, Wendy began gifting stock early and often to her three children and seven grandchildren, never expecting that, at age 57, her M.D. husband would seek a divorce, splitting their assets in half. She doesn’t know whether she can ever afford to retire.
Or perhaps you’re like Outdoor Oscar, who’d really rather be fly fishing in Montana or snorkeling in Cozumel. The fire in his belly is gone, and he spends less and less time at the office. But Oscar hesitates to designate any one of his three sons as president, fearing fallout from the other two. Secretly he admits he should have retired three years ago and appointed a strong executive from the outside, but he keeps delaying the tough decisions.
The 19th-century German Chancellor Otto Von Bismarck established the traditional retirement age at 65 after asking his ministers what age government workers could be expected to die. Happily, family business owners don’t have to answer to anyone like Bismarck. Some choose to retire in their 40s; others are still working in their 70s. There’s no “one size fits all” retirement plan. What matters is having a plan.
The owner’s retirement sets a standard for those who come after. There are many ways to do it right.
Consider the simple practical plan developed by Dan Leonhardt of Leonhardt Plating Co. in Ohio: Each year for five years he has worked one less day per week, first staying home Mondays, then adding Tuesdays, etc. At the beginning of each year he delegated another set of responsibilities to his brother/partner, Kerry, one of his three sons or his nephew, saving the tasks he enjoyed most (in his case, finances) for last.
If a family entrepreneur wants to sleep well and enjoy a happy retirement, there are a number of practical steps to take before leaving the business:
1. Work hard to select the most competent leaders available who are capable of taking the company to the next level. If no family member rises to that standard, pick an executive from the outside, hold onto the Golden Goose until the next generation matures and enjoy the fruits of your labor.
2. Define the core competencies that the retiree provides to the company by keeping a log for two weeks in 30-minute increments of what he or she actually does. What percent of the week is spent dealing with banks? Personnel problems? Production? New ventures? Trade associations? Prioritize your interests in each area, and write down the sequence by which you will delegate these responsibilities to your successors—saving the best for last, of course.
3. Even if the current economy forces you to delay retirement, set a date to turn over your responsibilities, so successors can prepare themselves systematically.
4. If you want to gift company stock to the next generation, focus first on establishing control of the company in the hands of those who will manage it, rather than dispersing ownership to all heirs. Equal isn’t always fair.
5. If (like most founding entrepreneurs) you gave little thought to funding your own retirement plan, get your assets out of the family business and transfer the risk to your successors. Then you can truly be financially independent, whatever the successor generation does. There’s nothing like signing a bank note to sharpen a successor’s motivation and unearth entrepreneurial drive.
6. Clarify the right role to play regarding the business—for instance, acting as chair of the board, receiving monthly (not daily) financial reports, attending regularly scheduled (at least quarterly) meetings, requiring business-like accountability from the next generation and incorporating other business leaders as members of the board.
7. Stop giving advice unless asked, especially about details of the internal operation of the company, except at board meetings.
8. Design a plan for the next chapter of your life, in which you learn new skills and meet new people, even while you cherish time to enjoy that second cup of coffee in the morning.
Ellen Frankenberg, Ph.D., is a family business psychologist in Cincinnati.