He paused, looked remorsefully around that somewhat neglected conference room, and continued, I built a successful family business. It provided us with a great life and it represented a great future for you three. That future and my dream of you all working in it and thriving is gone now.
Then he repeated, How could you have done this, how could you have let this happen?
Our firm had been hired nearly a year before that meeting (at the prodding of the bank) to try to save the business. Although we had turned the income statement positive, the damage was done and the lack of cash made going forward nearly impossible.
We were able to arrange the sale of the company to another firm at a bargain price. The good news was that the owners got jobs and no one had to sell their home to pay off the bank.
This unfortunate situation happened because the father thought that simply working with his attorney and accountant to devise a succession plan that would provide him with an income, avoid as much tax as possible and work properly in his estate plan was all he needed. He had, in effect, prepared the will, but he had ignored any consideration of the way.
His succession plan was quite ingenious from the financial aspects and would have provided him with a nice retirement had he done a better job on his operational succession planning. He literally came in one day, told his sons he was retiring, who he wanted to take what key roles, what papers they had to sign and how much they were to pay him each month.
There was no training, no preparation, no coaching and no planning. Ten years later, he wondered why he had received only a few of the agreed upon monthly checks and could not comprehend how they could have let this happen.
I didnt have the heart in that meeting to tell him that it wasnt just the kids fault, it was as much or more his fault for not spending as much time preparing and planning for the operating succession as he did for the financial succession.
Scenarios like this are played out way too often. Great businesses that have been built with many years of hard work and effort are destroyed by a lack of operational succession planning. Owners of these businesses often say they have their succession plan done, when in fact, they have simply done the legal work.
Others claim they are too busy and way too young to worry about succession issues. Worse, some believe that succession planning is only for family businesses.
But whether it is a traditional family business or not, whether the owners are young or old and whether the owners are legally prepared for succession or not, as long as operational succession planning is ignored, the company is at risk. And if the company is at risk, so are the families, employees and everyone associated with it.
A recent survey of family business owners by Arthur Andersen found that although 92 percent presumed the business would remain under family control, 69 percent had no strategic plan and 43 percent had not identified a successor.
As important as operational succession planning is, and as elusive as it seems to be, it is really not that hard to accomplish. But, like any planning process, it does require a strong commitment to not only spend time and energy to develop the plan, but to also implement it. It needs the same priority and attention as any process that can affect the future of the business.
Operational planning can be broken into four steps:
- Establishing the vision and objectives;
- Assessing the current situation;
- Developing the plan;
- Implementing the plan.
There is little difference between planning for long-term business success and planning for business succession. The bottom line is that you need to develop a plan that fits your long-term vision.
Over the next four months, well tackle each of the four steps in the operational succession planning process.
Joel Strom (firstname.lastname@example.org) is president of Joel Strom Associates, Inc., Growth Management. His firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. Contact him at (216) 831-2663.