Succession Planning
Services We Provide
Succession Planning
Preparing The Next Generation To Lead Your Business
Ninety percent of the 21 million U.S. businesses are family-owned, and one-third of the
Fortune 500 are either family-owned or family-controlled. Yet only 30 percent of family-run
companies today succeed into the second generation. An even smaller 15 percent survive
into the third. The reason, according to many experts, is obvious: the lack of an orderly
succession plan.
Thinking ahead is a cardinal rule of business. In addition to monitoring the daily operation
of your business, you need to think about the future. And, as difficult as it may be, it’s
important to envision the day when you no longer will be in charge. You leave your heirs
and your business vulnerable to considerable estate taxes and management upheaval if
you don’t plan ahead.
Recent surveys provide some alarming statistics. Only one percent of family-owned
businesses in North America reach a third generation with family members running them.
Another report shows that 30 percent of all family-owned businesses have not considered
a successor, with only 63 percent having done so when the owner has already reached
age 65. Finally, another recent survey shows that more than 58 percent of small-business
owners list inadequate succession planning as the biggest threat facing their business.
Given the fact that 90 percent of the 18 million-plus businesses in America are family-
owned and managed, it's obvious that a solid succession plan will be important should
the majority owner die, become disabled or retire.
Handing it all down
Typically, succession planning entails three steps: a decision-making stage (choosing a
successor), the gradual transfer of minority stock holdings and the transfer of ownership
and management responsibilities to the successor.
In choosing a successor, don’t force a member of your family to assume unwanted
responsibilities. First, find out whether he or she is willing and able to assume the role. If
so, make sure you are in agreement that a moderately paced transition will provide the
best environment for the company’s bottom line and overall stability.
Throughout deliberations, you might even find that the burden of managing your business
requires the skills of a professional with few or no ties to your family. If such a person is
already in your employ, his or her ascent to leadership may prove more advantageous to
the business than carrying on a "family tradition."
Most experts in the field of succession planning suggest using these steps to pave the
way for a suitable successor:
 | Set a target date as your last day with the company and start shifting | |
| responsibilities ahead of time. You want to be able to oversee the transition while you're still there. | ||
| Set standards that take into consideration the needs of your successor. | |
| Decide whether to offer stock to retain key employees after the transition. | |
| Provide for buying out a family member's stock, if necessary. | |
The Time for Planning is Now
Rather than a single, dramatic movement, the smooth succession of a business more
resembles a flow of events that occurs over time. Like a well-run relay race, the handing
over of a company should be graceful, carefully strategized and well executed if it is to be
successful. Unfortunately, the majority of business owners neglect to plan so
seamlessly for their own succession.
More often than not, the reasons are psychological. No one likes thinking about their
mortality, and entrepreneurs are no exception. Moreover, some owners so closely identify
with their ventures that they can't imagine their offspring of long hours and hard work
continuing without them. Others believe they're too busy to plan for the day they will leave
and consequently put off succession planning until tomorrow.
But tomorrow may be too late. Serious illness, disability or death can catch a firm by
surprise. A crisis such as this brings great upheaval, and it's difficult to make rational
decisions in the best interests of a company when emotions are running high. That's why
a well-thought out succession plan -- a kind of insurance policy -- is essential to the
continuation of a business, no matter what its size and structure.
Rather than a single, dramatic movement, the smooth succession of a business more
resembles a flow of events that occurs over time. Like a well-run relay race, the handing
over of a company should be graceful, carefully strategized and well executed if it is to be
successful. Unfortunately, the majority of business owners neglect to plan so
seamlessly for their own succession.
More often than not, the reasons are psychological. No one likes thinking about their
mortality, and entrepreneurs are no exception. Moreover, some owners so closely identify
with their ventures that they can't imagine their offspring of long hours and hard work
continuing without them. Others believe they're too busy to plan for the day they will leave
and consequently put off succession planning until tomorrow.
But tomorrow may be too late. Serious illness, disability or death can catch a firm by
surprise. A crisis such as this brings great upheaval, and it's difficult to make rational
decisions in the best interests of a company when emotions are running high. That's why
a well-thought out succession plan -- a kind of insurance policy -- is essential to the
continuation of a business, no matter what its size and structure.
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| Law Offices of Christopher J. Shellito, Esq., LLC 5510 Pearl Road, Suite 300 Parma, Ohio 44129 (440) 885-LAWS (5297) (440) 885-5318 Facsimile E-Mail: chris@shellitolaw.com |