The word “succession” is broken into two pieces, “success” and “ion”. It literally means the “passing on” or “transition”of success. Succession planning is a critically important “rite of passage” of a business from one generation of ownership and management to another, most often drawing on the resources of family members who are willing and able to carry on the business. While it is an important adjunct in the overall estate plan of the business owner, it doesn’t have to be complicated and should occur before probate. The four steps to succession planning describe the important considerations in choosing the proper and most appropriate team and process for changing out the leadership of the business.

FOUR STEPS TO SUCCESSION PLANNING

1. Determine who is involved
2. Develop a strong business plan with new accountabilities
3. Determine when the plan needs to go into effect
4. Determine how the plan is to be executed

Depending on the family dynamics, each family member involved in the transition of wealth understands the difference between fair and equal. Additionally, relationships between the siblings, the role of in-laws in the business, the ownership split, the influence of owners and spouses and the respect that the various family members have garnered among the employees and key customers, all provide fodder for the potential arguments that could arise as to what is the best succession plan to achieve a transition for the business, for the employees and for the family. In some cases, the customers have a stake in the outcome as well.

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Each of our last three clients had issues that could be traced back to their previous family members’ ownership. All too often the preceding owner is a strong person, respected in the community, respected within the business, and they are the “CONTROL”. The problem is that since a “person” is the control, he or she determines what “good” is for the organization. Thus, problems can be covered over by them saying, “I’m already successful and I must be doing it right”, and the successor family member begins to learn a dangerous method of management.

Each of our clients were historically “successful”. Each experienced frustration with the successor family member. Either “they just weren’t up to it” or “they aren’t doing what we did”, therefore leaving hundreds of thousands or millions of dollars “on the table”. Upon review, the structures and individual employee accountability to “minimum acceptable standards” of action, results, and reporting were never established. Information was generally wrong or incomplete or unfocused in form to the real problems and controls of the company. Without correct information, the successor was “flying blind”, and more importantly and disastrously, was attempting to rapidly expand the business. The concept was not wrong. However, without accountable structures in place, the company simply lost more profit while revenues increased. The attitude of, “We’re making money, so it must be good” and “It is just a matter of more revenue to be great”, is just a rehash of the old style of management which the successor believed did not work.

Prior to turning over your business via buy-out or gift, get a formal analysis of the operations and personnel including the current ownership and the planned successor by a qualified outside resource. Understand your strengths and weaknesses. Once defined and agreed upon, implement the corrections prior to the business transfer. The investment in yourself and the future will almost always yield multiples of the cost shown by new profit every successive year. Formulate a plan for the next generation to be well-prepared to move the company to even greater heights.