Hurricane season is upon us and hopefully you have taken the necessary precautions in the event Mother Nature unleashes the power and fury of a hurricane on Central Florida. Forecasting the weather is not a perfect science, however; when it comes to identifying and tracking hurricanes, weather forecasters do a remarkable job. Thanks to news outlets, we have the benefit of advance warning. We are given insight into the strength and magnitude of the storm and we even have a close projection as to the hour the hurricane will pass over our area. Yet many people ignore the advance warning, neglect to prepare and develop contingency plans. Business succession planning is similar to a hurricane in that business owners know succession planning is inevitable, know they need to develop a plan, more often than not have adequate time to prepare yet often procrastinate and ignore the implications and consequences associated with not having a sound plan. The result is a business catastrophe where many are shocked, devastated and in some cases have to pick up the pieces, salvage what’s left and start all over again.
While I appreciate this may be a harsh analogy in that business succession is not a matter of life and death, the survival and continued success of your business could impact your financial security and the livelihoods of many others who depend upon your business. Now that I have your attention, let’s focus on a few things you can do to increase the odds your business will weather the storm.
Short Term Preparation: First step to surviving a hurricane is to be prepared. In the short term, develop a Succession Planning Emergency Kit for your family and business partners that includes critical information such as:
- A list of your trusted advisors (Attorney, CPA, Financial Advisor etc.) and how to contact each of them;
- Location of important documents and information: Wills/Trusts, Durable Power of Attorney, Advanced Medical Directives, business agreements, leases, life insurance etc.;
- Passwords for your computer, your cell phone, email, banking and online investment accounts, safe combinations/safe deposit box location and keys;
Ensure someone you trust knows where to find this information so that your wishes can be honored and the transition process is more easily managed.
Mid-Long Term Preparation: Understand where you truly are on the succession planning spectrum by conducting an honest assessment covering the ten, interdependent areas of the following Succession Matrix®.
- Owner Motivation and Perspective – Is your goal to build the business and eventually sell it or pass it to family or key managers? This primary question dictates the succession alternatives.
- Personal Financial Planning – Are you accumulating wealth independent of the business in an effort to become less dependent upon the business for your security? Is your estate plan up to date? Is it coordinated with your succession plan or does your estate plan divide your business equally among active and inactive children? Have you addressed your exit strategy? How transferrable are critical banking relationships and lines of credit?
- Business Structuring – The corporate structure and business documentation play a pivotal role and create flexibility when it comes to succession planning. Are there any unique requirements such as a franchise agreement that have specific criteria that must be honored?
- Business Performance – Profitability, employee satisfaction and customer service are key drivers in any successful business. Profitability facilitates growth and also positions the business to withstand cash calls in the future whether it is to buy out a partner/family member or help pay estate taxes.
- Strategic Planning – Do you have a clearly defined vision/mission/values that family and employees understand? Other than annual forecasting, do you and your management team invest time to assess the risks facing the family and the business? Have you developed a formal plan that governs business decisions and focuses resources (people, time and money)?
- Leadership Continuity – How dependent is the business upon you? Who will lead the business if you cannot? Is there a formal plan in place that has been communicated? Will key managers support your children in your absence? How deep is your bench?
- Management Synergy and Teamwork – Self-explanatory!
- Successor Identification and Preparation – Do you have a successor? Is he or she qualified? Earned respect? What additional training/experience is needed?
- Family Dynamics – Addressing family issues, protecting family harmony and communication is imperative. Do you have a Family Council?
- Family Governance – What will the organizational structure look like in the future? When and where might professional management, a Board of Advisors or a formal Board of Directors make sense?
Honestly assessing and addressing these ten areas impact the sustainability of earnings and therefore the value of your business.
As John Wooden, the famous UCLA basketball coach stated, “Failing to prepare is preparing to fail.” Hurricane Succession will eventually come. The question is: how well prepared will you and your business be to withstand the inevitable challenges. Following the short-term preparation steps above and carefully considering each of the questions embedded in the ten interdependent areas of the Succession Matrix® will increase the odds your family business will successfully weather the storm. If you are interested in digging deeper or learning more about the Succession Planning Emergency Kit or the Succession Matrix®, visit www.seekingsuccession.com.
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