“No one knows my business better than I do! I built this business from scratch, who are you to tell me what to do? We did great, we brought the business to this level. We deserve a rest, we deserve to retire and keep on watching how our business will grow without us.”
Are we ready for this crucial decision-making moment?
Succession planning can be your best friend as you want to see your business flourish when you have exited.
Steps to successful succession planning
Research has shown, only 54% of boards of directors were grooming a specific successor and 39% had no viable internal candidates who could immediately replace the CEO if the need arose.
On average, one over two businesses have either no or poor succession planning practice. We’d better make sure that our business is not part of the statistics. Succession planning is about classifying business-critical roles that, if remained vacant for a long period, could impact the business’ performance.
According to BDC, a good practice is to have an informal advisory board to support the decision makers.
Only 6% of Canadian entrepreneurs have an advisory board for their business. However, 86% of entrepreneurs who have an advisory board say it’s had a significant impact on their business. (2014, BDC)
The benefits and attributes of an advisory board could be summarized as follows:
Many families could be very hesitant to acknowledge the need for transition planning and on sharing the outcome of such planning with the right stakeholders. If the succession planning exercise is done properly, it will provide high chances for our business to remain sustainable well beyond the leadership transition.
Family business does not come without its own particular challenges. This definitely doesn’t make it easier for the entrepreneurs, however there are ways to mitigate and reduce the risks significantly.
Let’s talk about the pink elephant in the room for a second:
- Financial returns: What is the value of the company? Should we look at the balance sheet or at the earning capitalization model?
- Family Interest; are we all on the same page: Retirement income is the objective on the horizon. How to align the interests of all stakeholders, current business leaders vs. the potential new comers.
- Time for the next generation: Not all businesses succeed at passing the flame to the next generation. On average around 35% of family owned businesses succeed.
- Disputes within the family: My interest is different than yours. It could arise from a simple dispute, a divorce, voting rights of non-executive members, and even death.
- Inheritance and Estate complexity: Think about the tax impact.
A big weight on our shoulders! To avoid such complications, planning would become a crucial component of the business. The earlier the better.
- Fix Goals and Objectives: A strategic planning exercise is a must for family owned and small businesses.
- Corporate Governance: Set a clear decision-making process. Define triggers and communication processes.
- Write a succession plan: The best time to do it is when there is no conflict yet.
- Define a handover plan: Let it be clear with timelines, action items, financing options, etc.
- Business and Estate Planning: Get advice from a professional tax advisor. Have a business advisor on your side to help you build the strategy going forward.
Provided by: Marc Zirka, Strategy Up