[S1128]Succession Planning And Management

A succession and estate planning lawyer told me a long time ago that "businesses are organized the way they were organized." This succession and estate planning lawyer had been working with successful business owners and farmers for over two decades by then. I was young and didn't understand what he meant... when said that one of the greatest stumbling blocks for success when it comes to succession and business estate planning - was the way the business was originally organized many years before.

He explained that businesses were typically organized as a sole proprietorship, a partnership, or a corporation of some sort based on the advice of their original accountant, attorney, banker, or successful friend. That was what these trusted people recommended based on whatever they knew about the situation them. And it had worked out.

The business owner generally saw no reason for changing the way the business was set up, using the time honored approach, "If it ain't broke..." from that moment on. Time passes.

Fast forward twenty years.
It is quite likely that the same organization is in place, unless their CPA had told them to make changes along the way to save taxes or their lawyer had had them reorganize to address liability or other issues. Unless there had been some immediate benefit or threat - they were usually still organized the way they were originally organized.

Now that twenty years have elapsed, it's very likely that the next generation of has joined the company and wants to share in its growth. After all if they and their spouses are going to commit to the future of the organization they want to be sure that their efforts will be rewarded, now or in the future - or both.

But no one knows how. After all the business is still organized the way it was organized. The senior generation has not spent any time considering the alternatives for shifting the growth to the next generation through clever planning strategies.

They hear rumors of how others in the industry have had huge battles for power and are now dysfunctional both as a business and as a family. They don't want this to be their legacy so they try to keep the subject at bay with, "someday this will all be yours" and try to change the subject.

And they know of other companies just like theirs where everyone is so happy and seem at peace with their plans for the future - everyone is on board with whatever has been decided and they are thriving.

Maybe they should get the name of their attorney, but no - that would mean they would have to admit to problems and tell this stranger the details of their business. Neither of these alternatives work well for them. It's nobody's business and anyway, "our business is different."

So they do what most of us try to do when confronted by something too painful to face up to, they take the wait and see approach. Maybe this will blow over.

After all, when they were in their twenties (or thirties or forties) their dad's position on the matter had been "Someday it'll all be yours!" and that had worked out - as seen in perfect hind sight.

They had not been willing to rock their boat and their spouse had been willing (or so it seemed) to go along with the decree from above. They had waited and now they were the owners of the business and so the 'wait and see' strategy might not be a bad one.

What they so conveniently forgot is how miserable, intimidated, and humiliated they had felt when they had to face their spouse after another unsuccessful 'discussion' with dad.

And you will never know, although you wonder about it from time to time, how much more financially successful everyone would have been if enlightened planning had been in place all those years between the day of that first discussion and when you actually assumed ownership.

How much more money would have been in your family's bank account or in the business itself - rather than in the hands of the government due to the unnecessary taxes you've all been forced to pay because of the inefficient transfer process.

I remember it as if it was yesterday when a successor-to-be in a very successful business asked me to tell his dad (I'm still amazed how this confident business person could not do this himself) - "Wayne, tell my dad that it doesn't matter if I'm going to get the business or not, just tell me now! I've got to know now so my wife and I can plan our future."

Since this is not about you, it's about someone else, you are probably wondering why the senior generation people hesitate so when it comes to succession planning.

Why won't they take action and face the inevitable future - sooner rather than later. Why won't they take the bull by the horns an get started with the succession planning process so the business continues to prosper without any setbacks due to lack of planning or for that matter lack of communication.

First of all, like you, the senior generation owners only know what they already know about succession, business, and estate planning. Unless they have been through it before recently they don't have any clear cut workable ideas on how things can or should be done.

Their advisors only know what they know. Their expertise my be limited to the way they've always done things and they may not be open to suggestions. And they may not welcome the input from others, no matter how well intentioned.

Plus they often don't trust these advisors ability to keep their secrets, especially some person they don't know and who doesn't already know their story.

Because the senior generation is considered successful by the people in the community, because they are called upon for advice of all sorts from everyone, and because they have a position of influence in their industry - they don't want to appear dumb. They'd be embarrassed to have to ask anyone something that someone in their position should know.

I know that seems impossible - but it's true. They fear being embarrassed in front of others - people they know only superficially in many cases, more than the results of their inaction. After all 'wait and see' worked ok for them.

The results? The natives begin to get restless, probably because of their spouses. What's wrong with them, don't they trust me? The talented begin looking at other opportunities. The competent begin considering their options. The no-so-competient become the next generation successors by default. It would never occur to them to question the authority of the boss. Plus where else could they make as much as they're likely to make here?

But it doesn't have to be that way.

You probably consult with an industry peer or two from time to time about issues facing your company. Perhaps you take them aside at an association event, maybe you speak on the phone semi-regularly. Maybe you have even been part of a dealer council or a group from your industry put together by your manufacturer.

No matter how it happened there are at least a few of your industry peers whose opinions you trust and who have provided you with some honest help and insights in the past.

These one or two peers can be the beginning of a 21st century peer group, where instead of getting together when there is a crisis or problem to be addressed immediately, meet regularly over the phone in an ongoing strategic conversation.

The topics you discuss would naturally include succession planning, maybe not at first - and certainly succession and estate planning are only a small part of the discussion.

Nevertheless over time, as you all become more comfortable with one another, sensitive subjects would join the more mundane issues such as sales, advertising, marketing, sales management, human resources, employee policies, competition, etc. that are likely to dominate the first strategic conversations.

Consider how simple and inexpensive 21st Century technology makes this process. You have free or virtually free long distance to connect you with fellow association members across the country. There are various free online discussion groups that offer you confidential communications in between your regularly scheduled conference call.

And there is even a 21st Century conference call service that allows you to easily record the calls for the benefit of a missing member if you wish and allows you and your fellow members a way to interview guest experts who are initially known by one or even none of you - without having to give up your personal information in order to hear their ideas.

At some point you and your fellow members will be able to openly talk about the succession issues each of you is facing. Now instead of only knowing what you know about the way the business can be organized for seamless succession planning - you also know what these 4-5 successful business owners know.

And chances are each of them knows one or two others like them who have addressed issues successfully so the circle of knowledge gets bigger.

I am not suggesting a do-it-yourself succession planning strategy without legal advice or council. I am suggesting a process that will help you uncover more and more of the possibilities.

As these possibilities are discussed with your peers you'll become more conversant with the strategies out there - ones people like you are using, so when you have those interviews with your advisors you will be in charge of the agenda.

Properly approached succession planning is a process, from the moment you consider seriously that your business just might succeed, and as such requires an evolving continuous process to see that the results everyone seeks are considered and made a part of the picture.