The Essence Of Succession Planning

In my thirty years of being involved in the development and implementation of over five hundred succession plans, I can say with relative certainty that the essence of a great succession plan comes down to one word, Clarity.

There is a reason why only 30 percent of closely held businesses make it past the first generation of ownership. Many owners when confronted with the issue of succession simply do not know what they really want, why they want it, and the best way to obtain the desired outcome they are looking for. This lack of clarity around the keys to succession planning often creates devastating results for the remaining partners, family members and key people associated with the business.

As a trusted advisor, your role in a business succession discussion should center around the following questions and keys to help the owner(s) develop the clarity, more than certainty, as to keeping or selling the business in the future.
1. Is there a motivated successor(s) who possesses the knowledge and experience beyond that of the founder?
2. Is there an organized team of management that approach their responsibilities professionally and agree to accept the new leadership role?
3. Is there a group of current advisors that understand the business, knows and respects the successors and are willing and capable of helping pilot the business through uncharted water ahead?
4. Is there an uncomplicated and rational ownership structure that does not confuse inheritance with management?
5. Are there accommodating heirs who can cooperate and work together or agree to separate themselves from the enterprise?

In our planning process with business owners, the answers to these important questions establish the initial direction we pursue for the succession strategy. Essentially, the core issue is, does the owner(s), their partner(s), and family member(s) have the right initial ingredients for a successful transition. You can’t predict their future success, however you can certainly address and minimize their inherent risks associated with a transition by helping them think through these key issues. We position this session as part of our initial discovery process, and in many cases is the reason we get selected to be involved in the case by the client and their other advisors.

A real case in point, I am currently consulting with a very successful business in the Railroad Industry. The case was brought to us by an advisor whose mother was involved in a family business. The business was started forty years ago by the father who is now 75 years old. He has two active children in the business, one being the advisors mother, who have helped grow the business in the last 14 years. A key element is, although these siblings have worked together for years, they do not see eye to eye on how the business should be run going forward. They are both in their fifties, and have other interests they would like to pursue. In addition, the father and founder has a spouse whose health is failing and he would like to be more attentive to her at this time. He himself has some health issues, and would like to be less involved with running the business day to day.

After a very telling and emotional discovery meeting with the family, it was evident that the father would like to keep the business going and his children did not. He wanted to make it his “legacy” to his family and continue to be an industry leader. His challenge is he does not have motivated successors or a strong management team that would accept the new leadership responsibilities. In the interim, he is being highly sought after for a strategic buyout from one of his biggest competitors who recognizes the value his company would bring to them. This is a unique opportunity for the family to develop a solution which can address everyone’s best interest in a meaningful manner.

I guided all family members in a session which addressed the potential outcomes of both scenarios, keeping or selling the business. I walked them through the important criteria for either option and modeled the best case, worst case, and most likely case outcome for each scenario. In essence, provided them with clarity and a “dress rehearsal” in advance of the event. This flushed out all challenges and opportunities of each option, and most importantly everyone’s personal feelings on the matter.

In addition, I provided an overview of the unique planning opportunities the family has in 2012 with the current estate and gift tax laws. I addressed the current rules and pending changes, and shared several strategies that can protect the family wealth and and preserve their assets. I discussed how a new plan may provide immediate financial security for present family members, and for generations to come. This was the tipping point for the family. They were actually excited how they can monetize their business, and turn it into cash for the benefit of all concerned. The father could cash out, financially set up his children who helped him grow the business, and create a legacy for his grandchildren. Most importantly, the father could be home and care for his beloved wife. As a result, based on this relevant conversation and other factors, the family has engaged our services and retained an investment banker to help with the sale of the company.

In conclusion, be clear that a major role you have as a trusted advisor is to help your clients navigate through the information and options available to them. In addition, you must be confident and capable to help guide them through their decision making process. This includes managing some very emotional elements that must be considered before they will act upon your solution. For your clients, the essence of a great succession plan starts with helping them develop clarity on “why” they would plan, not “how” to plan. You then can provide the “confidence” of process, and “capability” of solutions that assists them to take relevant and meaningful action in a timely manner.

To learn more about Lou Cassara and his firm, The Financial Resource Network please visit his website at

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