There are 27 million closely held businesses in the US and it is estimated that there are roughly 5 Million baby boomer business owners. Many of them face a dilemma in years ahead: sell the business or pass it on to their heirs.

Only about a third of US businesses make it to a second generation. Only 12% pass to a third generation. [i] What is surprising about these numbers is that there is no shortage of family members working in these businesses. There is however a significant fear about having discussions about succession.

It appears that people do not like to talk about the death or incapacity of their aging parents and relatives. We don’t like talking about it personally, much less within our businesses when there are economic ramifications. These problems seem to magnify when there are several siblings in a business, to fight to maintain some pecking order.

Yet what these entrepreneurs fail to recognize is that failure to provide clarity about a succession plan creates stress for a business, their children and employees. While such conversations may be unpleasant, and can even create strife within a family, the alternative can be much worse. Siblings compete for power and influence, putting employees in the impossible position of interpreting who they are to go to for what. We once worked with a husband and wife, and their two children. It could take the four headed monster months to make a decision. The unwillingness of the parents to plan for succession created a lot of unnecessary dysfunction.

It doesn’t have to be that way. One creates a will or trust not for themselves but to ease the pain of those who will have to manage their financial affairs someday. Creating a succession plan and the pre-cursory financial and estate planning instruments is not that difficult. Family offices and financial planners are adept at creating the necessary documentation.

Here are some steps to consider in creating a succession plan (for private companies and family held businesses):

Step 1: Set specific long term goals for ownership

This is often achieved through some form of long term planning process.

Step 2: Establish a set of managerial competencies

Focus on those things that are important in your operating environment (such as operational excellence, innovation or financial acumen).

Step 3: Evaluate the management team

Have the management team assess the skills of each manager or hire an outside firm to study their emotional intelligence and skill level. Create a grid and grade based on the managerial competencies.

Step 4: Debrief the assessment

Review the findings of the skills assessment and offer each manager specific development opportunities that will inform on how they can progress during the course of their career.

Step 5: Seek out high quality legal and tax advice

Consider all legal and tax implications regarding transfer of ownership or control. Remember that with outside advisors, you get what you pay for. Most business owners need a high level CPA, transactional/estate attorney and wealth manager, working together as a brain trust.

Step 6:  Create a robust performance management system

Train your managers (especially senior managers) on how to hold people accountable to specific performance outcomes.

Step 7: Identify the successors

Have frank (and confidential) conversations with your top people about their career path.  Consider hiring a coach (or have them join an executive group like Vistage) to help them develop their skills. Ensure developing new leaders is a core competency in our company. Harness technology are critical success factors for contemporary executives.

Step 8: Handcuff your best people

Ensure that you have provided incentives for future senior managers to stick around.

As they say, a journey starts with a single step. Don’t be afraid to have meaningful conversations about your succession plan. Then go find the professionals that can help you put your plan into action.

[i] Keeping it in the Family Bloomberg Businessweek