Benjamin Franklin said that nothing is certain in this world but death and taxes, and business owners ought to be ready to deal with both if they expect the business to continue as a going concern. Nevertheless, a surprising number of businesses, including CPA firms, do not have a written succession plan in place to provide for continuation of the business in case one of the owners withdraws or dies.
Many successful business owners who are caught up in the here-and-now demands of running a company have given little attention to what will happen to the business once they retire. Some business owners forego succession planning because they simply refuse to acknowledge that retirement is inevitable. Others may believe choosing a successor can be postponed until retirement draws closer. The emotional issues surrounding business owners that have reached retirement can be a “touchy” subject, so many businesses avoid having a written succession plan.
Smaller organizations rarely engage in formal succession planning because they consider it unessential and unnecessary. Many reason (or hope) that they’ll sell or be able to identify and prepare potential successors when the time comes. However, an owner’s informal intentions about what will happen to the business upon his or her departure is a poor substitute for a formal plan. Failing to plan for succession can mean significant monetary losses and sometimes even loss of the business itself.
Most business owners have experienced the disruption that can result from the unexpected loss of a key employee or manager; a sudden vacancy can lead to confusion and loss of efficiency as the search for a replacement is conducted. This disruption is only multiplied when the loss is the owner. However, naming successors can be a challenging and stressful aspect of succession planning. Will it be family members? Employees? A third party? These challenges often include gut-wrenching decisions that impact relationships within and outside the organization.
The entrepreneur/business owner, particularly in a family owned business, weaves traits of a keen business mind, risk management, people skills and strong work ethic into the fabric of the company. It is no wonder, then, that when the time comes for the owner to decide on the future succession of the company, quite often paralysis, as a result of analysis, can result. Turning the reigns over to someone else can be scary and downright risky, both emotionally and financially as each situation is unique. Certainly, family financial considerations come into play. Open, honest communication is always difficult and sometimes painful. Without it, however, an owner may not fully realize what other family members’ goals and objectives might be.
Surrounding oneself with wise counsel is a good practice to follow. Assessing the available talent and resources takes time, patience, and often outside input. An owner would be well served by surrounding himself or herself with a strong team of professionals that can contribute unbiased ideas and comments regarding a transition plan. This group can and often includes attorneys, bankers, investment advisers, accountants, insurance agents, and specialized succession planning consultants. In other cases, the owner may consider forming an independent board of directors.
Owners can add value to the business by thinking of succession planning as an ongoing activity, not an event. Once a decision on ownership succession is made, the planning timeline and process can be determined. It is early in this stage that certain key financial considerations must be determined and thoroughly analyzed. These considerations include valuation aspects, tax planning, funding requirements and the resulting impact on company resources, and the various legal aspects of a transition.
Once there is a documented succession plan which has gained the support of top management and the owners, there is one last item necessary for success: Don’t consider it a completed task! Regularly revisit the plan and look for ways to improve or modify it based on changes in your business.
Succession planning is vital to every business, family owned or not and is a process that takes time to develop. A successful succession plan is ever-changing to reflect the businesses’ changing goals and strategies. When an owner has declared retirement, his or her roles and responsibilities do not diminish. It is up to them to assist in implementing the succession plan and transitioning existing clients as the owner can add value through sharing knowledge and experiences gained over the years. With a solid succession plan in place you will make your business more structurally sound and further the success of the company.
