Succession Planning – How to Begin the Conversation
Building a family business is a major accomplishment, and takes an enormous amount of vision, passion, and determination. Maintaining and protecting your business for the future is a critical component to the business’ long-term success. What we are talking about here is succession planning – the process of identifying and developing new, next-generation leaders who can replace current leadership when the time comes. Unfortunately, this is a task many family business owners overlook, put off, or avoid addressing altogether.
According to a 2016 survey from PricewaterhouseCoopers, while 69% of family businesses surveyed expected the next generation to take over the business, only 23% had invested in creating a robust and well-documented business succession plan.
We understand, facing the idea of who will take over the family business is difficult! It can be fraught with issues surrounding fairness, compensation, vision and control. What we do know is that addressing a plan for leadership, and ownership, succession is critical to the longevity of a family business.
Common Obstacles to Succession Planning
Existing family conflicts, and/or the anticipation of arguments and controversy, are the main reasons succession planning discussions are avoided. Unfortunately, like most “elephants in the room”, things don’t go away if you ignore them. When it comes to succession planning, the longer you wait, the worse things are likely to get. Bottom line is that there is a business at stake so the conversations need to happen.
Some of the common considerations and/or obstacles include:
- How do we determine who is best suited to take over the company? What if there is no heir apparent?
- What if more than one (family) member expects to do so? How do we choose between multiple children or family members?
- What if there is no family member to pass the business on to? What if there is already an absence of family structure in the business?
- Does the person transitioning out have a clear plan? Do they want to work in a continued capacity or fully disengage? Will they be on the Board? What are their financial needs or expectations?
- What are the tax and financial implications to all this?
- What if there is existing conflict between the present and future generations or successors? What if there is no alignment about the future vision for the business?
- How do we transition ownership and assets of the business as well as leadership? Are they the same? Is there a role for other family members to become owners?
Succession planning is a way to provide business continuity going forward and protect it for future generations.
Succession planning is most successful when it occurs well before the time of transition. All too often, family businesses find themselves in a crisis and unprepared to make decisions around succession. Succession planning should start 10, or even 15 years, in advance of the actual event. It is much easier to start the conversation when there is not an emergency or extreme pressure to do so. The conversation can take on a much less contentious tone and allows for the planning to begin more organically.
How do you open up the conversation about succession planning?
Looking at the full scope of developing a succession plan, it looks like a complex and time-consuming process. It involves addressing potentially tough questions and hard realities. Like all challenging projects, breaking it down into smaller pieces is the way to begin.
If you have not developed a thorough business succession plan, you may want to start by considering the following list of questions. They are intended to get the conversation started, and help get you on the right path for the future of your business.
Begin with some questions:
What does the current owner want to do? What is their plan for retirement? How do they see their role in 10 – 15 years? Do you think you want to stay active in the business or go enjoy your golfing down south?
What does the next generation want to do? What do they see for the business? What are their plans?
What is the future of the business?
Who is best suited to take over the business?
What roles might other family members have in the future? How do spouses, our children fit into the business?
How will ownership of the business transition in the future?
What about family members who are not active in the business at this time: will they become owners too?
What if there is no one interested in taking over? Should the business be sold? When is the best time to do that?
Poor planning and execution of the transition plan
can ruin a business.
It’s very important to point out that there is not a one-size-fits-all approach when it comes to succession planning. You can’t look at another business and compare, or copy what someone else did. Business succession plans are extremely subjective to the business and its family.
Think about the process. Talk with your leadership team and your family. The initial conversations you will have if you utilize these questions are great to gather a lot of information. The work associated with creating your plans require that next you peel back the layers to get down to specific desires and decision. This is where it gets sticky! At this level, it’s a good opportunity to utilize some objective, outside professional assistance. Professional family business consultants can help make the discussion less personal, and more productive.
Quad Group can help.
At Quad Group, we don’t want family business owners to miss the window of opportunity to make a thoughtful, informed plan for the sustainability of the business. Succession planning, like estate planning, is something that should be addressed with the help of a professional well in advance of the actual time of transition. We understand exactly what is involved because we come from family businesses, and have participated in the process from all perspectives. Now as family business consultants, we bring that experience and understanding of the nuances and challenges of succession planning to our work with clients.