Have a succession scenario in place
by Amanda Danchi - SPECIAL TO THE POST Nearly 70 percent of family businesses are either liquidated or sold after their founders retire. Even worse, only 10 percent of family
businesses make it through the third generation. The primary culprit: failure on the part of the owner to plan adequately for succession. The worst
thing you can do, say the North Carolina Association of CPAs, is to procrastinate in planning for the succession of your business. Whether you are planning to retire and pass your business five or
10 years for now, you cannot afford to waste any more time. Here are some things to consider in order to ensure that you and your business continue to prosper: Facing up to succession There are several reasons why leaders of family business put off planning for succession. First, their
identity may be so tied to the business that they either put retirement off indefinitely or go into semiretirement, creating an uncertain, unhealthy environment within the business.
Second, naming a successor from within the family can cause great conflict. As a parent, a founder wants to treat the children equally, which means dividing the wealth equally. But, the businessperson
knows that the business should go to the most capable, qualified candidate. Often, the easiest solution is to ignore the conflict, never planning for the future. Which can have disastrous consequences. In general, family-run business need strategic and succession planning even more than public
business do, for several reasons. First, CEOs of family businesses typically serve six times longer than their counterpart in public companies. The length of tenure makes the impact of change, when it comes, enormous.
Second, family businesses have unique capital needs that require planning. For example, such businesses often must pay estate taxes when the founder dies. They must be prepared to buy out
uninterested heirs. And the families can make unpredictable financial demands. Therefore, planning for who will take over once the founder is gone is one of the most crucial decisions for the life of a
business. Yet, according to surveys conducted among businesses, only 51 percent of the owners have a strategic business plan and, of that 51 percent, only 12 percent had written pans.
In the absence of well-articulated plans, family-owned companies are especially vulnerable.
Selecting a successor Selecting a successor is often a decision by default. Most family businesses will have one member of
the next generation who is more active, qualified and interested in the business than his or her siblings. Frequently , the founder has already spent a great deal of time grooming his or her
successor- apparent or the successor has soaked up much of the necessary knowledge on his or her own over the years. The challenge, more typically, is in finding ways to assure equitable
treatment for the non-participating family members, be they spouse or siblings
If succession has not already been determined by interest, proxy, or birth order, a group effort in choosing and grooming an individual is one way to proceed. Key employees who are not family
members can often be recruited for a transition team. If your valued long-time employee can participate in the selection and initiation of a successor, the entire team will benefit over the long run.
Involving key employees is a good way to retain them and retaining them is essential for continuity and credibility in dealing with outside sources such as banks and suppliers. If there is competition between your children for the position, a decision to divide the power
between them is not likely to be successful. Ownership may be divided but management should be clearly delineated. Often ownership can be split into passive and active shares, giving the active
successor the necessary control over the business but providing an equal economic benefit to the inactive shareholders. In some cases, the business can be divided along functional lines, so that
different family members can assume control over well-defined functions or business units.
Put right spin on retirement
The more active your role is planning for the transfer of control to your successor, the more your business can benefit from your knowledge. Inventory of job activities
This will serve as a guideline to your successor by highlighting the areas that are most important and by identifying tasks that might be eliminated.
Conduct a future job analysis. Identify the challenges ahead and the requirements for meeting them. Create objectives to be accomplished before you retire. Once you decided to retiree, there's some
risk that you'll lose interest in the job. Setting goals can help you stay interested and focused. Create an inventory of content knowledge. Plan to transmit knowledge about your position that will
be critical to your successor, such as industry knowledge or historical knowledge about the company. It's also important to create an inventory of process knowledge. You do many things
instinctively. Now is the time to become more conscious of the processes, so you can pass them on to your successor.
Finally make it official
Too many family business and pass the torch in private. It's beneficial to have a formal celebration or ceremony so employees and bankers are not confused about who's in charge.
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