The time will inevitably come — whether by choice or not — when you are no longer able to run your business.
So what can you do now to ensure the business and the wealth that you’ve grown will go on without you? Create and execute a succession plan, says Bill Willbrand, a tax and accounting member at Brown Smith Wallace LLC in St. Louis, Mo.
“It is estimated that more than $10 trillion will transfer over the next 10 to 15 years as baby boomers retire,” says Barry Worth, member and director of mergers and acquisitions at Brown Smith Wallace. “When you think in terms of the amount of wealth that has been lost over the last two to three years, succession planning is key for preserving the value of a business for its owners.”
Creating and executing a succession plan, in conjunction with a strategic plan that lays out a company’s vision, can help keep a business on track toward its long-term goals, says Worth. But it can be difficult to set aside the time to do so.
“Many key managers and owners are so wrapped up in day-to-day problems that they never take time to focus on the long-term goals of the business,” says Worth.
Smart Business spoke with Willbrand and Worth about how to construct and implement a succession plan to prevent loss of wealth and ensure that your business will continue without you.
Why is succession planning so crucial to a business?
Succession planning is a tool to help transition the business properly and preserve the value that the owners have worked a lifetime to achieve. Such a plan will put the best talent in place to carry on the vision the company has outlined in its strategic plan.
In the case of the death of a key manager or an illness that takes an owner out of the loop, there needs to be a successor in place who can step in and fill those shoes, someone who has the same intellectual capital to devote to the business. Without a succession plan, the business may never achieve its full value.
What are the primary steps in the succession planning process?
First, the company needs to clarify its needs and willingness to commit to a plan. Commitment to the process is essential. Next, the business leaders must step back and take a good, hard look at the talent pool. What are the strengths and weaknesses of potential successors?
The strategic plan is a critical guide in this exercise, as key managers determine what skills are necessary to achieve the company’s vision. For each candidate, you also need to determine whether the individual has the desire to lead the business. Does that person possess the right skills? If you want to transition to a successor who prefers to do something else in life, the plan won’t work.
Once you complete the assessment, the business should identify a successor and begin to build a supportive team around that person.
How can a company prepare the chosen successor to transition into the leading role?
After identifying the successor, leadership must review the successor’s strengths and weaknesses and do a gap analysis to determine what training is necessary. What skills will help this person gain the intellectual capital necessary to be a strong successor?
Mentoring programs should be put in place to help the successor transition to the leadership role so he or she can succeed in leading the company to its full value.
How does the process differ for succession in a family business?
When family dynamics are involved, an owner’s views on who should take over the business can be skewed. A favorite son might be positioned as the successor rather than a younger daughter or a cousin who has better skill and experience.
These issues get sticky. It’s important to set egos aside and also recognize that the business may need more than one successor — perhaps one leader who is not family — to help realize the company’s vision.
Sometimes, the right answer is to dispose of the business and secure the value for the family. But, if you decided to keep the business in the family, now is the best time financially to hand the reins over to the next generation through a gift or a sale, because shares and assets are worth less today, so taxes will be lower.
Is the process something business owners can do on their own?
Anything’s possible, but outside advisers can be critical to helping guide a business owner through this process.
An outside advisory board can provide a forum of third-party, trusted individuals who help direct the succession process and monitor the execution of the plan. Those advisory board members might include seasoned business owners, industry peers, consultants, attorneys and CPAs.
The idea is to get an independent perspective on the process so you learn the best practices for creating and executing a succession plan.
Bill Willbrand is a member in tax and accounting and Barry Worth is a member and director of mergers and acquisitions and turnaround consulting services at Brown Smith Wallace LLC. Contact Willbrand at (636) 754-0200 or firstname.lastname@example.org. Contact Worth at (314) 983-1202 or email@example.com.