Succession planning is critical for a business’s future ownership and leadership, yet most business owners procrastinate in preparing for their future. This procrastination increases the costs related to their succession and reduces the probability of a successful outcome. After all, business succession is not a matter of “if” but a matter of “when.”
Learning the “why” behind procrastination and motivating business owners to seek advice from experienced and skilled advisors dramatically increases the likelihood of a successful transition.
Why do business owners procrastinate in succession planning?
Identity. A business often reflects the owner’s personality, values, and beliefs and becomes part of their identity, similar to how parents feel about their children. In most cases, this relationship with the business has evolved over many years from its infancy as a startup to a complex and mature organization. Changing and ultimately severing that relationship with the company can be traumatic to the business owner’s psyche. Procrastination is a natural defense mechanism for business owners because it is easier to do nothing than face the reality that a change is inevitable.
Uncertainty. Like I share with my clients: “It is hard to leave where you are until you know where you are going.” This uncertainty and lack of vision can be unsettling and foreign to business owners; they feel like they are leaving a stable environment for something unpredictable and out of their control. The key is to formulate a vision for the future to create certainty based on what gives them purpose and direction. The post-succession vision and framework are best developed well before an owner’s exit so they can gradually transition mentally into the next chapter of their lives.
How do business owners overcome this procrastination?
Tangible benefits. Business owners need to identify the tangible benefits of succession planning to motivate them to be proactive. They also need to understand the downsides if they don’t prepare. This carrot-and-stick approach creates clarity of what is possible and what to avoid. The tangible benefits may be the continuation of a family enterprise, creating a legacy for multiple generations, personal freedom and choice, physical health, and more time with family and friends. Understanding the positive and negative aspects can be a powerful motivator to start the process of developing a plan for the future.
Multiple options. Exploring the advantages and disadvantages of the various succession options is essential. Is it best to retain the business for family members, co-shareholders, or employees, or is it best for all concerned to sell it externally to a third party? To make this decision, business owners must consider many factors, such as their personal objectives, family situation, successor skillsets, business outlook, and employees, to make well-informed and quality decisions.
What are the biggest mistakes that business owners make in terms of planning?
Relying on a single advisor. Succession planning requires a diverse set of skills and expertise. Depending solely on one individual to guide them through the process is a common mistake. Business owners should assemble a team of specialized experts, including a succession planner, attorney, accountant, investment advisor, and other professionals, who can provide comprehensive advice tailored to their unique circumstances.
Procrastination. Succession planning is not an event; it is a process. Procrastinating on beginning the process results in fewer succession options, decreases the likelihood of a successful transition, and increases the “price” of succession. Recognizing the importance of succession planning early and understanding the possibilities allows more time to decide and prepare the business owner, the business, and key stakeholders for the ultimate change.
How should business owners put together a trusted team of advisors?
Embrace a team approach and individual skills. Business owners and advisors should adopt a team approach mindset and understand that each advisor brings a unique skill set. A well-rounded team will have experts who can address the legal, financial, tax, and operational aspects of a well-defined succession plan—defining each team member’s roles and relationships and promoting collaboration results in a balanced and all-encompassing strategy.
Specialized advisors. Seek out seasoned advisors who spend most of their time in transition or succession planning. They will possess in-depth knowledge and understanding of the intricacies associated with their respective fields, enabling them to provide tailored guidance and solutions.
Succession planning is vital to a business owner’s ability to realize value from their company. It prepares for the future leadership and ownership of the organization while positioning business owners for the next stage of their lives. Business owners can successfully navigate the complexities of succession planning by being proactive, defining their objectives, evaluating their options, and assembling a team of skilled advisors. Please contact our seasoned team of advisors if you are contemplating a future succession or would like an objective third-party analysis of your current plan and its completeness.
Don Bielen, MBA, CFP, CM&AA, and Principal at Perkins & Co, specializes in business transition and succession planning as well as transaction advisory for clients throughout the United States. Ready to start planning for the future of your business? Check out our business transition & succession offerings and contact us today.