The Business Side of the Equation
A recent Forbes Magazine article highlights an important issue for all business owners – most don’t have adequate estate plans – in some instances not even a basic, current Will. Current stats on this show less than 50% of Americans have a Will and the business side the same trend with less than 50% of U.S. companies without adequate succession plans (sometimes no plan at all). Succession planning (and a personal estate plan consistent with it) is critical for businesses of all sizes. If the CEO or another key business leader in your organization became critically ill, suddenly departed or worse – then what?
This blog highlights how critical succession planning is to growth, sustainability and wealth preservation of any organization. My next blog will take a look at the personal side of the equation and the importance of completing personal estate planning tied to the goals of the succession plan.
Succession planning is basically the process of deciding who will lead an organization when a planned or emergency vacancy occurs in key leadership roles – someone becomes disabled, retires, passes on or suddenly departs under friendly or not so friendly circumstances. Over the past few decades as counsel to a number of closely-held entities, I’ve seen the good, the bad and the ugly on this issue. Business owners and those who rely on them suffer personally and financially if this important planning isn’t done. Businesses that fail to plan leave a lot to chance. A good succession plan will meet the needs of the organization, its key stakeholders, family members, employees, customers and others.
For closely-held and family-owned businesses, a business and the value of the business often represents the single biggest asset and most integral part of an owner’s wealth and financial security.
The Key Benefits of Succession Planning:
1. Preserving the value of the business by limiting (often eliminating) costly, disruptive disputes over who fills important roles and what direction the company takes in times of planned exits or unexpected exigencies. If the CEO or another key player is suddenly incapacitated or some other event forces an exit – then what happens? Are sufficient financial and human resources in place to be readily called upon to sustain business? No one wants to consider these issues, but it does happen and often without warning. In recounting just one instance of what can and does happen – a successful, closely-held business had misfortune strike without warning when company’s founding member & CEO passed away a short time after a stroke leaving grieving family members at an impasse over what to do. A key senior manager with more than 2 decades of experience at the company, the most ideal candidate to step in to lead the company, was “passed over” by the CEOs highly-political daughter, who appointed herself to “step into his shoes”. The fall out resulted in the senior manager and other employees leaving the company and customers concerned about the future. The end result of no planning was a lot of unnecessary damage to their business reputation and very public, costly lawsuits that ensued.
2. Smooth business transition and continued growth. Well-constructed succession plans provide the necessary framework for avoiding a lot of unnecessary headaches that can negatively impact a company’s reputation and bottom line. Completing this important planning gives employees, customers and decision maker’s confidence about the future – a key element of any successful businesses.
3. Enhancing continuity, goodwill and reputation of the business. A great deal of the value of a company is tied to its goodwill and reputation. These types of disputes drain resources, harm relationships and often lead to very public disputes by disgruntled employees, unhappy family members and customers. A great deal of effort went into building a successful business why leave it to chance. Succession planning is one of the most critical determinants of maintaining the value of a business now and in the future.
4. Tax Implications. Creating a tax advantaged plan consistent with both short-term and long-term goals puts the company in the best position for a possible third-party sale, internal succession by family members or employees (ESOP) or other strategies to enhance the bottom line.
5. Those who don’t do this planning leave a lot to chance. The cost of completing this process is far less than what’s lost by failing to plan and well worth a good night’s sleep, keeping good customers, happy employees and a sustainable future.
How do you get started? Working with a qualified legal and financial advisor with succession planning expertise is a great way to ensure the best result.