Rarely have business owners been faced with the difficult economic
survival decisions required today. However, a small business owner’s
greatest immediate threat is not the economy, but suddenly being unable
to participate in daily operations. In businesses where critical
decisions and leadership rest with one person, the business’s future is
quickly threatened when that person cannot participate.
An unexpected triggering event can take a routine but challenging
lifestyle and turn it into personal and financial chaos. The list of
triggering events has no end. It can be as rare as being fallen by a
flying fish or a more frequent event such as a slip and fall resulting
in life threatening injuries.
An owner’s hidden asset is an identified and qualified successor who
can assume operating control on short notice. This is frequently
overlooked when developing a contingency-succession plan. A qualified
successor can be critical in determining whether an owner-operator will
have a business to return to should they be temporarily immobilized.
Self-employed professionals are known for being optimistic,
competitive, creative and organized. And if they’re passionate about
their venture, they work as many hours as it takes to get results.
Ideally they seek the same virtues in a successor. Unfortunately, most
successors are chosen as a matter of convenience with little thought
given to their qualifications or availability.
In many cases, small businesses are solely dependent on the daily
participation of their owner who is the senior manager controlling
day-to-day operations. An owner who has built a successful company does
not want to surrender control until he or she has to. Owners are
reluctant to identify a successor due to a perceived threat to their operating authority. Grooming a
successor requires time and a compromise of their decision-making.
Qualifying traits sought for a designated successor include:
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Loyalty
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Company knowledge
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Demonstrated operating ability
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Being a leader
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Innovative
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Possessing a required level of education and/or specialized degree
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Having the necessary operating licenses if applicable
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The ability to advance the business rather than just being a caretaker
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Finding a knowledgeable experienced successor on short notice that can
make essential decisions can be key to a business’s survival. The
availability of a chosen successor is difficult to ascertain unless
they are already active in the business. For those not already working
in the company, the luxury of time to learn and make mistakes while on
the job becomes substantially reduced, especially during severe
economic times.
Who becomes the new senior operating manager can determine the
enterprise’s survival. In small companies the responsibility for
operating a company frequently falls by default to an immediate family
member. The majority of the time it is the spouse, followed by
children, then extended family members.
Who are your potential successors and how will they become the chosen successor? The list begins with:
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Your spouse |
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A child or children |
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A loyal employee |
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Trustees of a trust |
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Someone outside of the business |
Power struggles within families or the business can develop immediately
for many unforeseen reasons. Frequently overlooked when designing a
plan are family member perceived entitlements. In a family business, an
entitlement mentality often leads to a self-destructing family conflict
when competing desires have not been previously addressed.
The extent of an owner’s participation in the company’s daily operation
determines the immediate and long-term impact of their sudden
departure. Different triggering events determine the type of plan
implementation.
Protecting the survival of any business is complex at best. Key to
protecting a company’s longevity is having an effective
contingency-succession plan. Contingency plans are short-term immediate
action plans that depending on circumstances may evolve into a longer term permanent succession plan. A contingency plan provides an
immediate transfer of management authority while a succession plan
provides a transfer of an owner’s controlling interest and with it
management appointment authority.
The difficulty with the “I’m OK and everything is running fine”
owner/operator perception as a reason for postponing the creation of a
succession plan is that a triggering event can occur suddenly, leaving
an owner unable to participate in determining the company’s future. The inability to participate will set into motion
a chain of steps established by an owner’s prior action plan or, if no
plan exists, then steps prescribed by state statute.
Necessary segments that ensure a company’s continuous operation are:
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An operating plan |
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Provision for the business’ continuous operation |
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Identifying successor management |
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Comprehensive estate planning |
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Durable power of attorney |
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Will |
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Insurance |
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Replacing an owner’s (key person’s) value |
Spousal elective share entitlements are frequently overlooked when
planning. The term, depending on country/regional law, describes a
proportion (typically one third to a half) established by state statute
of an estate which the surviving spouse of the deceased may claim in
place of what they were left in the decedent’s will.
The cost to create a pro-active contingency-succession that includes an
operating plan that provides basic information and guidelines is
minimal compared to the cost of battling through the court system as
prescribed by statute or ultimately seeing your business closed.
Is your business prepared to operate on a continuous basis without you? You need a plan!
Dick Yemm is an author, speaker and consultant on succession planning.
His award-winning book, The Stories, was developed as part of the
series Tomorrow – Your Business Without You. They are used in his
seminars on contingency/succession planning for business owners and
their families. Dick is a professionally licensed Certified Financial
Planner™ and holds multiple levels of security licenses. For more
information please call 772-562-1281, e-mail
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or visit www.yourbusinesswithoutyou.com.
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