Succession Planning, Why Bother?

by Richard Hohmann
Since I don’t have a enough time to plan on a daily basis, how would you ever expect me to plan my succession? With the economy going south and the real estate market at its lowest ebb in years, how can I ever retire and make sure the business continues demonstrating sustained growth? These questions may be going through your mind but it is certainly the time and the climate to make sure a succession plan is in place and is viable.

Most people wait too long before developing a succession plan, but most agree late is better than never. Many business owners feel that succession planning ends with an estate plan and enough life insurance in place to handle most situations. It is true that they need to be addressed but there is more to succession planning than insurance and estate taxes. There is no question that the tax liability placed on the business following the owner’s death may put the business in the ground with the owner. There may be the need to use the monies from the insurance policy to sustain the company during this transition period. It is best to work out the financial concerns before they happen. It is important that the methods to pay taxes, buy-out the deceased partner’s share, etc. are finalized before the event actually happens.

Let’s look at the intangibles. Things like good will, trust, and respect for the new management team must be established over time. Even if it is a family member or key employee that takes over the company, trust development takes time…and time is money. Clients will have concerns about receiving the same quality of service and attention. The best way to eliminate these concerns is to develop customer loyalty to the new regime before the person retires or becomes deceased. It is imperative that you transition in the new management team prior to the old guard riding off into the sunset. Take the time to introduce your clients to the next generation of ownership while exceeding their service expectations. A Win-Win combination!

It is imperative that the new management team or generation of ownership is ready to assume the role. Many newly anointed family members have no real business experience or have never experienced any other work environment and tend to be rather poor in “street smarts”. Many times we revert back to the “let’em sink or swim, no one taught me how to do it!” or “let them gain the experience through failure”. I guess we now know why most businesses don’t last past two generations.

Here are a few steps to help Succession Planning work for you:

1. Evaluate the stage that your business is currently in.
2. Evaluate the stage where the business needs to be to sustain the opportunity for the next generation
3. Evaluate the people in place to ensure sustained growth and development
4. Recruit and train the next generation in ownership
5. Select the leader for the company; don’t divide equally.
6. Prepare the company for the transition; communicate the plan
7. Design an implementation plan for succession and stick to the timeline

Succession planning is not an easy task. It is time consuming and needs the input from your most trusted advisors; your spouse, other family members, your lawyer, your accountant, your financial planner and your business consultant and maybe some others. It takes time and money to create an effective plan of succession but I guarantee you one thing, if you don’t, it will cost you and your loved ones a lot more.

Call me at 609.390.2830 for a complimentary consultation on the development of Your Succession Plan or click here to get started now!