09 May Succession Planning: Where Do We Start?
If you’ve spent any time around the family business arena, you’ve come across the number: 70% of family companies don’t make it to a second generation, either because the business fails or for other reasons a decision is made to sell to a third party. Regardless of country, industry, culture or economic conditions, it seems the odds are low for a business to make it through an intergenerational transition.
But succession isn’t really a numbers game, it’s a planning game. And planning should start well in advance – at least three to five years ahead of a planned change in leadership or ownership. You wouldn’t start saving for retirement just a few months ahead of time, would you? And yet many owners put off planning for what is often their single biggest asset – the family business.
Here’s another saying you may be familiar with: Succession planning is not an event, but a process. It’s a mistake to treat succession as a “one of these days” kind of event. To achieve the future you dream of takes a sound process, dedicated focus and plenty of space and time to answer some of life’s bigger questions.
So what exactly does a succession planning process look like? While there’s no one formula that works for every person, family or business, there are five major areas that must be addressed along the way, and in concert with each other:
Succession doesn’t happen in a straight line, but it does have a starting point, and that’s with the owner’s vision. We’re big proponents of consensus-building communication involving all stakeholders. Yet some questions are best answered by the current owner or controlling generation. Questions like:
- Do we want to keep the business in the family?
- What’s our dream for life after the business?
- What will it take financially to live that dream?
- When will we shift our involvement away from the business?
That last question can be especially tough for owner-operators. But don’t shy away from thinking about it. It’s good practice now for making a firm commitment later as you go through the planning process.
Grounded in a clearer picture, you’re now ready to begin aligning the family’s values and business realities with your vision of the future. Some leaders want to see the entire landscape before moving forward. If that’s true for you, it will be helpful to start the process with a comprehensive assessment of strengths, problems, opportunities, threats and knowledge gaps facing your family and business.
Others prefer to dive right in with a known priority. For example, you may already know you want to develop a next level governance structure, including a family council. Or perhaps you have unfinished estate planning and want to make sure you’re leaving your family and business in the best possible scenario. Or maybe your business is in a mature industry, and your primary concern is how it will grow and branch out to be in better shape for transition.
All of the issues need attention; the order in which you actively work on them just depends on your situation and priorities. There are many right answers and right moves to make in your succession planning process.
That word “process” might make you think of steps, but succession planning doesn’t happen in a step-wise fashion. It’s more about keeping succession on the front burner and staying in the conversation with stakeholders. It’s about making plans that consider your own interests, your family’s values and what the business needs.
Succession itself may be in the future, but you can start planning for it today. It’s up to you to make the first move.