Succession Is A Marathon, Not A Sprint
Family business leaders focused on generational wealth creation understand that decisions made today will impact the business well into the future. How are you building your business to ensure it can succeed without the incumbent generation? My father-in-law worked tirelessly to build a business with my wife and I that was sustainable and scalable based on processes rather than key people. This was not an overnight process and one that is still ongoing.
The goal of these strategies and conversations is to create a business structure that will function well when the next generation matures into leadership. As Travis W. Harms wrote in a previous blog post, are your senior executives focused on building a business that can flourish in their absence? My family talked regularly about operations as well as what the business would be with the next generation in charge, thanks in part to humility and grace from all parties.
Create a Contingency Plan
My family’s long-term goal is for the next generation to slowly acquire ownership in the family business over five-to-fifteen years. What happens if things change drastically mid-stream? Business transition does sometimes proceed according to schedule, but often succession timetables accelerate unexpectedly. The New York Times had a piece recently highlighting stories from two sons whose fathers died without a succession plan. The article highlights stories of the stress put upon families when they don’t plan for succession, and the psychology that leads to plan-less exits: an unwillingness to let go, a refusal to listen to wise counsel, and the absence of a clear identity outside the role as family business leader.
How did my family address the very real risk of an unexpected succession? Our next-generation took ownership of part of a life insurance policy on the key principal in the incumbent generation. If the unthinkable occurred, the next generation would have liquidity and flexibility to decide what direction to take in the absence of the incumbent leader. The proceeds would also help with any tax liability in a sudden bequeath of familial ownership interests. This strategy is quite simple but allowed us to focus on the long-term strategy of succession.
Understand Where You Are Going
Eventually, all family businesses will transact in some manner, whether through an orderly transaction with a third-party buyer, a succession plan, or any number of less favorable outcomes. Clearly define where you want to go, even if you do not necessarily understand how to get there. Make sure you have the buy-in from all family stakeholders and everyone knows the ultimate destination. In my family, there are each member of the next generation knows which seat on the bus they ultimately want to sit in. These seat assignments have emerged from a lot of conversations, time, and value-alignment, something I wrote on previously in aligning family goals and business objectives. Getting the right people on the bus makes for a smoother ride as the family business matures and the family continues to grow.
Conclusion
A B+ succession plan today is better than an A+ plan later. Starting the succession planning process now – understanding that it will evolve – should spur family business directors to actionable plans that will help everyone sleep better at night.
Mercer Capital has a long history of working with family business owners in crafting and structuring the transactions needed to support the succession plan process. Let us know if we can help you and your family today.
