I am far from a fortune teller, but I can share that history proves that this too shall pass. We need to be vigilant, patient, and at the same time, motivated to keep things moving forward as much as we can.
Many will say that as soon as the curve flattens out, we will be moving forward. However, we must prepare for some lingering affects which can still impact us in the long-term. It will not be business as usual for a while, but we have to do what we can to lean on our advisors to help us keep moving in the right direction.
Knowing a crisis can hit anytime and as we have seen with COVID-19, very unexpectedly, the best prescription to keep from being here again is to ensure you have a solid strategic and succession plan in place. The strategic planning process can help you define goals which may include crisis prevention/communication, where as your succession plan is all encompassing to help you protect your family, legacy and future of the business.
Creating a succession plan that will be followed through with is a team effort involving you, your family and any other business partners. Engage your family in this process and develop an “our,” rather than a “my,” succession plan. To do this you need to show your family/partners the fundamental respect of asking what they want and begin developing a plan around those issues upon which you can progressively find agreement.
By including your family and business partner’s thoughts, feelings, input, and feedback into the succession plan, you will greatly increase the chance that it will be followed when you are no longer around to enforce it.
If you want your family business to survive for the long haul, it is vital to work on your family issues. The simple reason some families seem to navigate tumultuous waters with relative ease is they diligently engage with each other. Connectivity is the key for smooth sailing, no matter what happens. Families who spend time together, develop a great deal of flexibility, are not rigid in their roles and patterns; they generally give each other the benefit of the doubt; and they have developed healthy communication patterns. There really is no magic to it. It’s just plain old hard work.
If your family and managers seem to be at odds with each other, the first step to improving harmony is to evaluate family member perks, accountability and allowances in the business.
For example:
- Do they get to come in late
- Extra vacation time
- Higher pay for less responsibility
- Promotions that aren’t deserved
While you may be trying to “take care of your family”, you are actually creating an environment of resentment between staff and your family. Implementing a Family Member Employment Policy and Family Member Performance Expectations will get you on the right path for aligning family behavior to management expecations.
If family members are earning their keep, just like everyone else. and an employee still has problems respecting them, the employee may not be the right fit for your company culture.
Succession correlates to a relay race:
- There must be a commitment to preparation
- The runner must place and release
- The relay runner must aggressively take the baton with a commitment to win.
When you have no available family successor willing to run with the baton, it can be passed off to your key managers who you can utilize as a succession bridge. This succession bridge keeps the door open for any younger family members who, over time, develop the desire to work in and eventually lead the family business. The other option you have is to sell the business to your key managers, employees, or a third party. Succession planning will prepare you for any of these options.
This is a great problem to have! This is a huge decision, so we recommend that it is not hastily made.
When you have more than one capable successor, especially if they are family members, one of the best things to do is establish a well thought out curriculum for each candidate which clearly lays out the expectations and requirements necessary to someday lead the business. Once the curriculum is developed and effectively communicated, it is up to the successor to meet the performance expectations and training requirements of the curriculum.
Giving your successor candidates feedback on a consistent basis is important as it will provide coaching opportunities along their journey. After a period of time, have the potential successors, senior leaders, their peers and select direct reports assess each candidate’s strengths and weaknesses. What you are likely to find is that not everyone is willing to pay the price and make the sacrifice.
In the event there are multiple successors still in the running, develop an enhanced leadership development curriculum and let the cream rise to the top. If the strengths and weaknesses of the candidates compliment each other, an option may be that they share responsibility.
It is imperative that you do what is in the best interest of the company, even if it is not necessarily what might be the most popular decision among your family. Choosing one family member over the other or choosing a 50/50 Co-Ownership are both very delicate circumstances requiring deliberate action to ensure smooth sailing. Remember, there is no business gain worth a family loss.
The best time to begin succession planning for any business is when the business plan is created. Knowing this isn’t the case for most business owners, the next best time is now. Just as you are continually working on plans to make your business successful, you should also be working on plans that will provide for continuation of that success.
Succession planning is not about you leaving the business; it’s about building a foundation of success today that will provide the opportunity for future generations. Before making the next purchase or striking the next deal to grow your organization, you should ask yourself the following questions:
- Do I have the full support of my management and leadership?
- Do I have the excess capital and resources that growth requires?
- Do I have the confidence that my successors could manage what I’m building in my absence?
The questions surrounding growth can all be answered through succession planning to ensure your growing in the right direction.
The bottom line answer is YES, because succession planning builds business value. Prospective buyers, banks, Wall Street and estate tax auditors all recognize that business value is dependent upon the predictability that the earnings will continue after a transfer of ownership occurs, whether by sale, gift or estate bequest. These same parties also understand that value is not all about today’s earnings. Any improvement you can make in the 10 different perspectives of the Succession Matrix® will build value in your business. Ultimately, the work you do in building a foundation today for the success of tomorrow, builds value and will put more cash in your pocket when you sell the business.
The key areas that should be addressed in your succession plan, which as a whole are referred to as the Succession Matrix are: Personal Financial Planning, Business Structuring, Business Performance, Strategic Planning, Leadership & Management Continuity, Successor Preparation, Management Synergy & Teamwork, Family Governance, and Family Dynamics.
These ten factors significantly impact each other. Issues in one area can greatly impact the others. For example, an entitlement issue with one of your employed family members is a Family Dynamic and Governance issue. Assume the issue is resolved, they may now be considered a successor candidate (Successor Preparation), your managers who had begun to resent your child may take on a more positive, team oriented attitude once they see the changes in your child (Management Synergy & Teamwork), and you may decide to leave more of your estate and business to them (Personal Financial Planning).
While the main purpose of succession planning is to ensure the continuation of business success, succession planning brings along many other benefits. Additional perks of succession planning can include higher personal financial security outside of the business, better family relationships, less family and business stress, improved employee and management retention, and increased performance and profits.
Your accountant and attorney provide critical expertise and should be an integral part of your succession planning team. However, few attorneys and CPAs have developed a full understanding and are comfortable with facilitating highly emotional and interpersonal management and business issues. In addition to estate planning and business structuring, your business is vulnerable to issues related to family dynamics, business performance, management teamwork, leadership continuity, strategic planning and successor preparation.
A succession planner provides extensive experience in uncovering and addressing mine fields in any area that could impact the current and future success of your business. They provide a creative problem solving perspective to your team that unites the technical, emotional, interpersonal, family, management, and business issues into workable solutions towards your end goal.
A critical component to succession planning, is teamwork. As a result, a succession planner strives to ensure your CPA, attorney, family and management are all working in harmony to achieve your goals.
Having an exit strategy and your estate plan in order is a great first step to succession planning. However, your business’ future success is dependent upon addressing issues from 10 different perspectives. Estate planning and exit strategy only represent a subset of one of the ten perspectives, Personal Financial Planning. Without looking at your business and succession plan from each of the 10 perspectives, you could be leaving potential land mines uncovered. You also may not be capitalizing on missed-opportunities, therefore you may be putting your business and any established estate or exit planning at jeopardy.
We believe that in addition to the business owner and succession planner, the succession planning team should also consist of the company’s leadership and management team, the owner’s family, and the owner’s advisors (Accountants, Attorneys, Wealth Management and Investment Advisors, etc.)
The Rawls Group works in a team effort with your family, key leadership, accountant, attorney and your current advisors in a 3-phase process: Phase I determines where you stand now in relation to your succession goals; Phase 2 is focused on succession plan development and implementation based upon what was identified in Phase I; and Phase 3 is an ongoing maintenance program to keep your plan updated based on ever-changing life circumstances.
