Business Succession Plan - The Why
Psychologists tell us that over 85% of the people on planet earth come from dysfunctional families - families in which there is abuse, anger, depression, addictions and/or just plain bickering and disappointment. Most people have a problem with at least one member of their family.
As we all know, weddings and funerals bring out the best and the worst in people. Normal, balanced adults can do the most unexpected and bizarre things in moments of chaos, change and stress.
Then add the business element - money, assets and power - to this volatile mix and you're planting the seeds of trouble. It's all very well agreeing, on a fine day with a following wind, that when Dad retires from his company you and your sister will take half share each, you'll be in charge of marketing, she'll look after production and it will be all sweetness, light and lots of money. However, you both know that, when the time comes, neither of you know how the other will react. You don't even know how you'll react!
Then, suddenly, Dad has a stroke or manifests a 20-year-old blonde to shack up with on a paradise island and the business is suddenly yours and he's not there to manage and mediate. There's just you and your sister and, after an uneasy silence, all hell breaks loose! There's bickering, lawsuits, huge legal costs and no money left to run the business and a sister you'll never speak to again … and employees now without jobs, suppliers without a large customer and the mayhem spreads through the whole community.
All this can be avoided.
A Business Succession Plan
Take some simple steps, think ahead and try to imagine the perfect scenario after the reins of power have been passed on. Whether you're the one in charge, about to step down, or you're one who will be stepping up to the top job, you'll all benefit from creating a Business Succession Plan.
It's a very simple document:
At the time of Harvey Smith's death, medically assessed incapacity to run the company or decision to step ... |
Business Succession Plan - The How
In our last article, Business Succession Plan - The Why, you discovered:
- What catastrophes can happen when you do not plan your succession,
- What benefits there are in doing it, and
- How to create a simple Business Succession Plan yourself.
This article will take you through the process in more detail … like a checklist for Business Succession Planning.
The Three Questions
Start planning for succession in a family business while you're still running the business. Ask yourself these three questions:
- Is there is a suitable family member who can take over the leadership?
- Do you employ someone to coach or mentor younger family members? or
- Should external management be hired as an interim measure until a potential leader in the family emerges.
Succession planning in a family business is not always easy. Quite apart from the breadth of issues to take into account, succession planning can and does result in family disagreements. It's usually helpful to get assistance from your accountant who is skilled in the logical planning of family succession issues. Your accountant, or other skilled person, can also help facilitate family meetings.
Next Steps - The Succession Plan Checklist
Keep in mind the key points to succession planning listed below. Before you embark on your plan make sure you discuss with your accountant:
- What issues the family needs to agree on,
- What needs to be included in the succession plan, and
- The best way to implement it.
Start succession planning early in the life of the business and not when the key person - founder or CEO - is within sight of retirement. Remember these points ...
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Walking the Line Between Family and Family Business
There is a theory that if you ignore problems, they go away. Sadly, no one has yet been able to prove it works! The opposite theory - that if you deal with things before they happen, they won't happen - also can't be proven for how would you know it wouldn't have happened if you hadn't dealt with it? However, being a rational accountant, and knowing that there are less family feuds in businesses where there is a Family Charter, the second is sounder logic.
It's not always easy dealing with family matter in business as the lines between personal and business matters can become easily blurred. A family charter will prevent the problems arising from this.
The Family Charter - Laying the Ground Rules
Quite simply, a charter sets out the objectives of the family business and the rules by which it is governed. Firstly, ask yourself:
- What are the foundation principles on which the company stands?
- What succession plans are in place?
- What is the process for decision-making?
- How will family members be employed in the business?
There are examples of how siblings have moved smoothly into a family business with each having their own realms of responsibility. But when three siblings each have three children, the situation of nine offspring fitting into the family business in the third generation raises serious questions: Where will they all fit? Are they good enough? Do you include non-participating offspring as shareholders? Here are some questions that need addressing:
- Should family members work in another organisation before being offered employment with the family business?
- What kind of qualifications and experience should they attain?
- Can a family member approach the directors for a job, or should they apply in the normal manner?
- If there's no vacant position are you going to create one for a family member ...
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