It is now 2019. I have a simple resolution for you that would provide you with immense satisfaction and provide a great service to your clients. Ask each client if they have updated their Succession Plan for 2019. Most probably do not have a plan and if they do probably do not update annually. Either way we can help.
I was recently forwarded a paper from a member of our Succession Planning Team titled Start the New Year by Securing Continuity written by Rochelle Clarke. I will summarize some of the points she made along with some of my observations.
Disruption Happens
Unlike a publicly owned business which focuses purely on shareholders return a family business touches the family members in a variety of ways beyond just the financial return. In many ways though the family owned business is often far less adaptable to something unforeseen happening to the key operating officers who are usually members of the family. Succession Planning is most often ignored or at best poorly planned resulting in 70% of family owned businesses failing to transition beyond the present generation. Even with the continuation of the business a recent study found that upon the founder’s death on a mature business it experienced a 60% drop in sales and 17 % reduction in employment.
Why These Results?
Simply put it is the lack of a Succession Plan that results in the reduction in business or outright failure to transition.
Plan for Disruption
There are always excuses for not developing a Succession Plan; we are busy, tending to the pressing matters of the day, or the “who has time to worry about the distant future” excuse. But the future may not be that distant and it does eventually come! The paper by Ms. Clarke suggested three steps to prepare:
- Inventory: Document all key processes in your operation and make sure the proper team members have access to this information. Yes it is proprietary and should be kept secure but it does need to be available to appropriate team members. Often this critical information is not written but resides only with the owner or key officers.
- Identify: Choose the person you want to run the business in your absence. If this is a person within the team begin to prepare them for the position. If you do not have someone within the organization define what will be needed and have a plan to bring someone in. Consider a temporary CEO with an Executive Consultant that has similar experience running an organization. Summit Leadership has members that have owned and run organizations and are available to fill in until the heirs or Board select a permanent replacement for the owner as CEO. Ask us about the Continuity Partnership Program.
- Insurance: The transition to new ownership or having an outsider run the company for a period of time can be expensive. Having a life insurance policy for key personnel to help the organization through the transition can offset this cost.
There are other things to consider such as having an attorney involved once the owner or owners have decided on a Succession Plan to be sure things are documented properly. Discussions with the CPA will also help to address tax considerations. The owner should work with their Financial Planner to see how a Succession Plan will fit with their overall financial future.
The survival of a family business impacts so many people it is too important to leave vulnerable to a sudden departure of key personnel. It is not a question of if but rather when an unforeseen event will occur. Please work with your clients to help them to be prepared.