Part 1 of the "Process-Oriented Approach to Family Business Succession Planning" Blog Series
Over the twenty-eight year span of my professional career, I have written about, spoken about, and counseled clients on matters directly or peripherally related to family business succession planning on more occasions than I care to remember. Notwithstanding the passage of time, the discipline commonly known as succession planning never ceases to amaze me. For a professional practicing in the area, succession planning tends to be transactional in nature, and might culminate in the delivery of a business valuation, legal documents to effect a transaction, an insurance policy to fund a transition, an investment platform to manage the proceeds of a sale, protocols to develop employees and management, or even a set of skills that facilitate communication in a happy and high-functioning family. I would contend, however, that effective succession planning involves so much more.
I expect that you have all been inundated by the multitude of statistics and studies, essentially concluding that only approximately thirty percent of family businesses will pass from the first generation of owners to the second, approximately ten percent from the second generation to the third, and less than five percent from the third generation to the fourth and beyond. Business owners and the professionals who advise them are well aware of these statistics. Why, then, do we still fail to plan for the orderly transition of what is arguably the one thing that represents a business owner’s greatest concentration of financial and emotional capital, and that has probably occupied the lion’s share of his or her time over the years? I believe that the greatest challenges facing an owner regarding business succession planning are, quite simply, inertia, and a failure to recognize the emotionally-charged issues facing the owner that can easily derail the process.
I have, therefore, entered the blogosphere, with the intention to create a series of posts advocating a call to action. That call is to overcome the inertia, rise to the occasion, and begin a process designed to beat the glum statistics by developing, documenting and communicating a plan that culminates with the orderly transition of the business in which you have so much invested, by understanding the necessity to deal with both the hard (technical) issues as well as the soft (emotional) issues!
At a minimum, an effective business succession planning process should include the following:
- Engage the appropriate professional advisors
- Identify and understand the issues facing the family business owner
- Identify and understand the issues facing other key stakeholders
- Identify the overarching business goals and needs
- Thoroughly explore and understand the options
- Develop the plan
- Implement the plan
- Monitor the plan and enjoy the results
And the substantive focus? In my experience, I believe that the fundamental goals of all succession planning include:
- Ownership Succession
- Management Succession
- Financial Security
- Tax Efficiency
- Family Harmony
So, with this foundation in place, we are ready to begin the journey, and I will use successive blog posts to develop each of these areas in greater detail…so, stay tuned!
Read other posts in our "Process-Oriented Approach to Family Business Succession Planning" Blog Series:
Part 2: 18 Must Answer Questions for Family Owned Business
Part 3: Balancing Family Relations with Family Business
Part 4: Identifying the Business Owner's Goals - Cash Flow and Financial Planning
Part 5: Identifying the Business Owner's Goals - Taxes
Part 6: Business Succession Planning: Keeping Your Buy-Sell Agreement Relevant
Part 7: Business Succession: Who Are the Stakeholders and How Can You Satisfy Them?
Part 8: Don't Let the Failure to Communicate be Your Business Succession Plan's Downfall