Succession Planning – 8 of 8

April 28th, 2011

As promised at the very beginning of this series, here are some thoughts about succession planning for Family Owned Businesses. This piece, written by FOB specialist Pam Butterfield is longer than the usual entries, but I think you will agree is well worth reading.   And, you will find that the process outlined in previous installments can take some of the discomfort and guesswork our of FOB succession planning.     Elaine Gagne

Succession Planning for FOBs (Family Owned Businesses)

 

“When passing the torch to the next generation, family members confuse exit planning and succession planning.  They work with accountants and attorneys and put an exit plan in place but do little to ensure that the next generation can and will preserve the VALUE of the business.   Without adequate succession planning, only 3% of all 3rd generation FOBs succeed.” 
Pam  Butterfield
pam@businesssuccesstools.biz

Introduction

Family businesses are the life blood of this nation and yet, many struggle to survive much past the second generation.  Much focus and energy is spent working on gifting and tax strategies to preserve wealth (important to do)  but little unbiased effort is spent determining which members of the family, if any, have the necessary interest, drive, education, skills and capabilities to keep the family business  alive and healthy over the long haul. 

Exit Planning – Transferring Your Business’s Ownership

Exit planning pertains to your business entity and the transfer of ownership of your business entity.  It is the plan you put in place, usually with the help of a CPA, attorney and financial planner, to convert your business into some other form of income producing assets.  For most business owners, most of their wealth is tied up in their business which is an illiquid asset.  At some point, business owners have the need to transfer ownership, taking some or all of their wealth out of this illiquid asset into a more diversified wealth portfolio.  The goal of exit planning in the case of FOBs usually focuses on gifting and tax strategies that preserve family wealth and assets.  Typically, you work with wealth/legal/CPA/Insurance advisors to design the exit plan and execute the transaction.

Key point:  The exit planning process seldom focuses on ensuring that the right/best members of the next generation have the necessary experience, skills, and capabilities to be able to actually step in and run the business successfully, hence ensuring that the ongoing VALUE of the business remains strong.  And, your key advisors are often uncomfortable bringing up the concerns they have about “Junior not having the abilities necessary to run the business”.  It’s a little bit like telling someone that their baby is ugly … not a conversation they necessarily feel comfortable having!

Signs that You Need to do More/Better Succession Planning

The thought of passing the torch to someone else is a tremendous source of apprehension.  Most members of family owned businesses ask themselves one or more of the following questions but do not know what to do or who to turn to when they don’t like their answers:

How can I be certain my successor(s) will be successful?

Are the right key players in place and will they stay?

How do I build the layer of management below me so that I can exit my organization successfully?

Will my business survive my departure?

Should I leave?  Can I leave?

Should I just sell the business to an outside entity and be done with it?

Conclusion

If you are tossing and turning at night, pondering these questions, you, your family and your family’s business need to implement a strong succession planning process.   And, do it soon.

Grooming members of the next generation can take anywhere from 1 – 10 years, depending upon the role(s) each person will be playing in the organization; each persons’ current capabilities, and the development plan and process each person will need to following in order to get ready to take the reins.

Next – Effective Resource Allocation

Creeping resource allocation is an insidious disease in many of our organizations today that leaves loyal workers feeling overwhelmed and incompetent. When people go home each night without a clear sense of accomplishment, it is ultimately demoralizing and impacts their sense of engagement.

Our next series will outline a process to analyze resource allocation, take corrective action, and create processes that keep resource allocation aligned with organization mission and achievable.

Entry Filed under: Succession Planning