Succession planning can be a difficult subject to broach with many business owners.
We have worked with many companies and their transition to a new "Boss.” Unfortunately, it doesn't usually have the time needed to be done correctly because the current boss does not want to talk about it. According to my wife, it is like trying to get me to go to the Emergency Room – I almost need to be seeing the white light in the tunnel. For many business owners, succession planning can feel a lot like this.
The reason for a transition is usually a health reason or an interest reason. Either the Boss has definite health issues, or the doctor has told them they have definite health issues. In either case, we hope they act accordingly and not adapt to the use of the "body bag" retirement plan. Instead, we want to establish a thoughtful and organized succession plan.
Sometimes there is a loss of interest or passion for the business, or a reluctance to continue in the stress of the business. In either case, it is best to step aside because we need the Captain at 110%.
We have found there are four possible prospects for a succession plan.
The first thing I ask is if they have the same passion and unique ability as you do? What if you are a plumber and your child wants to be an artist. John and Son Artistic Plumbing. Yes, I have seen John and Daughter Plumbing. Don’t forgo developing a succession plan because you assume your child will gladly take over the business for you. It is best to let your children decide their unique ability and passion. If it is not your business – let them go to it. To love something is to set it free. I have three very successful sons – none have a passion for wealth management. Fortunately, Craig has the unique ability and passion to lead MWA.
2) An Employee
Many times, we have a trusted, long-time employee who knows the business well and has a passion for it. As far as unique ability goes, they might fit perfectly into the succession plan. The problem here is whether they have the financial ability to put some skin in the game. The chicken and the pig walked into the dinner and on the menu was “Ham and Eggs $2.” Pig said to the chicken, “For you that is a day’s work. For me, it is a lifetime commitment.” Also, because you were so good at management, this employee did not have to be, so they became friendly with their co-workers. Not all bad, but now this person is their New Boss. When creating a succession plan, it’s critical to think of how this transition will affect your employees.
3) A Competitor
Believe it or not, sometimes a competitor might be your best bet when creating a succession plan. I have seen this work, but it is tough. All these years you told people not to buy from your competitor – now they are part of the team. They probably do not do things the way you want; it’s not wrong, but it’s different. And how do you blend the employees of Company A and Company B? Don’t forget to consider these details when succession planning.
4) An investor(s)
I have seen this work, but your investor probably will not want to work – only put up the money. They want to exploit your "secret sauce" – and do you want to give it to them? The older ladies in my Church put together a cookbook with their favorite recipes. My wife tried one of my Grandmother's and could not get it right. She called my Grandmother and was given verbally the correct ingredients. None of the recipes had the "secret sauce" included. Remember, succession planning isn’t just about the economics of your business, or the economics of your retirement.
Succession planning is about your legacy.