Putting a Succession Plan in Place
According to an article in My Business magazine last year, 77 percent of business owners said they have a will, but only 33 percent have a succession plan. That’s just bad business, says Peter Bloom, an experienced business lawyer and founder of The Bloom Group, who has designed and implemented succession plans for many closely-held entities. At stake are the value and future of your company, your relationship with your family and theirs among each other, and your quality of life. So definitely “the earlier the better,” he says.
“What happens in the work setting is difficult,” says Bloom. “You have the supervisor/worker relationship, the mentor/mentee and then you have the family dynamic superimposed over this. [If it’s your father,] this is the same person who grounded you for a week 20 years ago.”
The first thing to determine, according to Bloom, is what you want. “This is really open ended by design. The answer is kind of paradoxical because what you want may not meet with everyone’s approval. You want to continue to be successful and have your children manage it, but you also want to maximize the value of your company and specify the roles your family wants to play. [But] what do they want?”
Bloom says that parents assume that their kids want to run the family business when, in reality, they may not. “Family businesses are a safe harbor and in the last couple years especially, the opportunities for young people may not be there, so the children may end up working there. That builds a set of expectations. Since you’re my client, my job is to solve your problem, so I need to ask tough questions. These are sensitive issues but issues that need to be worked out.”
He adds that although your children may have other jobs out of college, the questions are still in the air. So have the discussions. Maybe you’ll find out things you didn’t know. “And don’t put everyone in the same room,” he urges. If necessary, let the advisor talk to your family. “You’ve hired me so trust me to have these conversations.”
Guy Cecala, CEO and publisher of Inside Mortgage Finance, has made plans to leave his company equally in the hands of his four sons. He is fortunate that they all “been exposed to the business without any pressure. At the end of the day, you can either treat it like a job or an investment; the goal is that if they’re getting some money from the company, they have a vested interest in seeing that continue or grow.”
Tim Lutts, owner of Cabot Heritage Corporation, says that a key guide in his succession-planning process was Leon Danco, who has published books on the process. “We attended a seminar of his that helped substantially. The key points we took away were: 1) Procrastination by the founder is the greatest enemy to the business, which will almost certainly fail if he does not make a plan. 2) Step one is to select a successor(s). Step two is to set a date.
“My father did both. And while he continued to work for the company and treat it as his baby for years after, I was the majority and then sole shareholder. So once he did feel the urge to step down, it was relatively easy for me to step into his shoes.”
Lutts, whose daughter Chloe works for Cabot in New York, gave another important reason to succession plan. “If customers and suppliers know there is a solid succession plan in place, they are more confident about continuing to do business with the company.”
Bloom emphasizes the need for an investment banker in the process, in case the owner is better off selling or merging. Bob Brady took this route. He built Business and Legal Resources from the ground up before merging recently with M. Lee Smith to form Fortis Business Media, LLC. “I needed an advisor, an intermediary,” he says. “This was the biggest transaction of my life. I couldn’t afford to make a mistake. Plus, some are better at negotiating than others. That’s not one of my skills so I hired someone good at that. We worked on the details of the merger for a year.”
In the end, Cecala also just wants to do what’s best. “The goal is that it’s a legacy and not a burden [for my kids]. If it’s something they want to do and feel they can benefit from, then the opportunity will be there.”
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