Home Month and Year April 2021 Overcoming the Drawbacks

Overcoming the Drawbacks

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Succession planning all too often, falls to the bottom of a business owner’s to-do list. While we all know the importance of having a plan in place, the details and execution cause many to procrastinate. Today, three experts weigh in on why succession planning shouldn’t be delayed, and how to get started.

KMPG – It’s not the end, it’s a transition

Nicole J. Osolinsky, Partner, Tax, at KPMG in Canada’s Edmonton office says that succession planning is absolutely critical, not just for corporations, but also farms and small businesses. “The key word in succession planning is PLAN.  It requires intention,” she says.

The cost of failing to plan, Osolinsky points out, is more than financial.

“In addition to the financial toll, there is a relationship cost driven by frustration among family members and generations. There is an energy cost as financial and relationship tension is stressful, versus an intentional and well-planned succession process, which can be energizing. There is the cost of employee anxiety. Employees can be caught in the middle of tension and left unsure who is in charge.”

Despite the consequences, many businesses are still procrastinating on succession planning. Osolinsky says this because, “First, an entrepreneur’s passion leads them to work in the business, not on the business. Planning does not make it to the top of the to do list.  Second, intimidation about how to start and fear of opening up conflict or difficult conversations that they may not know how to navigate. That is where a professional can help – to facilitate the process and facilitate those important conversations.

“It is important to remember there are multiple parts to succession: ownership, which involves legal structure and goes beyond shares and entitlement to the value to involve stewardship of the family wealth (even for those who may not be active in the business); and succession of management which involves skill development, leadership, and defined roles.”

Clients of KPMG can expect personalized service for their succession planning journey.

“We know this is not about moving share capital around on an organization chart, or documenting a crisis plan in a will that leaves the family to ‘figure it out’ based on bequest of legal shares,” notes Osolinsky. “Our plans are rooted in communication.  We ask good questions – to the current generation and future generations – and we listen so we can help map out a plan for ownership and management succession, and a process for ongoing communication among all parties.”

Osolinsky concludes, “Doing nothing is still doing something but it is a strategy that has consequences. Succession should not wait until weeks before retirement or a crisis. Succession should not be a ‘surprise’ that is sprung on the family at some point. Succession is not the end of something—it is a transition not an exit, and the process can be extremely rewarding if approached well and with intention.”

 

MNP – Family dynamics play a role

Jim Rea, Business Advisor, MNP, states, “While most business owners are passionate about keeping the business in the family, they need to evaluate the suitability of family members for senior management positions. Do they have the appropriate education, experience and drive to lead the teams and develop strategy?

“Every family business of a reasonable size should have a family employment policy, which guides the hiring and development of family members. Such a policy provides transparency to non-family employees so that there is less resentment and frustration over family members seeming to get advantages not available to non-family members.

“Further, existing management exhibiting the skills and aptitude of potential leaders should be given the opportunity to undergo the same leadership training offered to family members. This will help ensure capable people are ready to take on the leadership roles during a succession process.”

Rea notes that outside experience for those in the family business is beneficial.

“Some families require their adult children get experience outside the family enterprise. This can help bring new ideas into the business when they are re-hired.”

To get started, he advises bringing in a professional that understand the relationship between business and family dynamics.

“A skillful facilitator can help set the tone for open family discussions, providing a framework for dealing with sensitive issues and bringing intense discussions under control. As with all relationships, better communication leads to improved interactions. We often find that the heated arguments or shutting down witnessed in early family meetings is replaced by much more collaborative discussions and decision making once the dust has settled and feelings have been shared.”

Rea’s final thought is a reminder that just because they are a family member, they are not entitled to a position.

“There are always other ways to compensate siblings who don’t want to be involved (or shouldn’t be). What is ‘fair’ might be a smaller piece of the pie, but without the responsibility of maintaining and growing the value of the business to realize that share.”

Predictable Futures – Overcoming drawbacks to planning ahead

Gregg Becker is the President and Owner of Predictable Futures, which been helping businesses with future planning for almost 40 years. He cites the following reasons business owners procrastinate:

 

  • Feeling stuck or stalled: issues come up that are hard to resolve or sensitive to deal with, so the process is put off.

 

  • Weak communication in the family: unclear (or no) conversations about sensitive topics and unarticulated expectations. With the bonds of loyalty, sometimes poor assumptions and communication gaps are left unchallenged.

 

  • A limited understanding of what creates a successful transition: technical advisors (lawyers, accountants, wealth advisors, etc.) all add great value to the process, but the relational aspects are not generally where they focus, so these tend to get ignored, creating much more risk.

 

  • People who cannot separate their roles as family members from their roles in the business: a founder can also be a boss and a father or mother at the same time.

 

  • Assessing successor and founder readiness: both are important and separate issues. It can be difficult for a parent to assess their own children objectively.

 

“The emotional impact of succession cannot be overstated,” says Becker. “For a founder or current generation business leader, handing over the business to someone else (even conceptually) can be huge. Their leadership and day-to-day routine are often a large part of their purpose and identity. For many family members, the business is a source of pride, and seeing it succeed is emotionally vital. Yet, dealing with intergenerational or sibling conflict is not for the faint of heart.”

He continues, “Our families often bring with them the emotional experiences of a lifetime, and it can be surprising how much these understandings and feelings impact their thinking around succession. As time and other pressures build, it increases the emotional intensity. That is why working early on succession is so much better. It reduces pressure on the process and the people involved with it, allowing for better decisions and healthier relationships.”

Becker discusses the way Predictable Futures address the balance between business and family emotions and issues.

“We sometimes use an exercise that simulates the loss of the owner or key leader in the businesses we work with. It is a powerful experience that helps the owners, family, and management work through a plan for what needs to be in place, and what should happen when the unexpected occurs.

“Failure to plan for this possibility almost always paralyzes the company and family when a sudden loss or absence occurs, and the outcomes range from sub-optimal to a complete failure. Such a disruption puts the business in jeopardy at exactly the time it most needs to pull together. It also puts tremendous stress on the family: spouse, kids, and others. The worst thing is, it doesn’t need to be that way, and preparing for this possibility is an inexpensive form of insurance.”

No reason to delay

There is no doubt about it. Succession planning is not a fast or easy process. It comes with a lot of emotional baggage on both the business and family fronts. Yet the consequence of not planning ahead means all those emotions and issues get tangled up in an even bigger problem when the worst happens. With professionals standing by to help guide you and your family through the success planning process, there is no reason to delay. Start the process now for a smoother transition later.

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