Long Term Wealth Needs Succession Planning
The business succession of our owner managed businesses is a big story among professional advisors, bankers and bureaucrats. The discussion seems to be less appealing with business owners themselves.
I believe this is largely because our business owners are builders used to being in the centre of the action. Talk of succession planning suggests the end, moving to the sidelines at best, off the team and out of the stadium is the predominant fear. So why would an active builder want to spend time planning his or her succession?
The fact is that succession planning is just part of business planning. I have a file in my office which we call the Mack Truck file. That file gives instructions as to what people should do to protect my family, financially, if the Mack Truck ahead of me on the highway stops and the Mack Truck behind me doesn’t. Not all events in life are planned but caring business people, with a long term view of family achievement, allow for the unexpected and mitigate the damage to the business and the family by having a contingency plan. Whether your exit is as a result of a Mack Truck meeting or as a move to the next chapter of your life, the plan is the same in many ways and the process of planning is as important as the plan itself.
When we talk about the process of planning; I like the discussion from Dean Fowler PhD of Wisconsin. Dr Fowler suggests that the succession planning should be undertaken by those who will be succeeding. Ownership of the plan by the incoming management can significantly improve the chance of accomplishing the plan’s goals and the current owners are protected by retaining control until they agree with a proposed strategy. The process requires that the existing owners establish the parameters and, using those parameters, the next generation of management develops the succession plan. When the plan is presented the current owners can discuss the arrangement and accept it, suggest some “tweaks” or send the proposal back for an adjustment, clearly communicating what their concerns are.
While control rests with the present owners the key word in the sentence above is “communicating”. A succession plan is the result of clear communication; it will include a time frame which may look several years into the future and it should cover what happens in event of the unexpected. Because it is built based on parameters of the current owner, the process requires the owner and his or her spouse look at their personal situation and what the next chapter of their life should look like.
In long term thinking, for successful families, the business is an economic engine. Like a piece of a jig-saw puzzle the succession plan is a piece that needs to be in place to give a clear picture of how the business family will conserve and grow family wealth.