Plan for Business Succession
By D.M. (DOUG) ROBBINS, FCBI
Many business owners dream of the day their sons
or daughters will follow in their footsteps and assume control
of the business.
The owner has spent years, maybe even decades,
building up the company. He or she is convinced it should,
and will, remain in the family.
As a business intermediary - someone who sells
a business on behalf of the owner - I see this kind of "succession
planning" frequently.
On the surface, it sounds very simple and natural,
but the reality is much more complex. I would estimate that
handing down a family business fails at least 50 per cent
of the time. There are a number of reasons why:
- The owner forgets
how much he or she knows based on years of experience -
experience the next generation doesn't necessarily have;
- The owner has run
the business in a very hands-on manner and hasn't appropriately
trained the successor;
- The next generation
isn't as motivated to make the necessary sacrifices that
running a business demands;
- The next generation
doesn't have the temperament suitable for business leadership.
Other family dynamics can come into play. The
retiring business owner may find it hard to break away and
may sabotage - probably unintentionally - the next generation's
efforts to assume control.
If more than one child is involved in business
leadership, situations may arise in which sisters and brothers
are battling among themselves. Sibling rivalry can be particularly
problematic if control goes to a child who is not the oldest
in the family.
It is important to note that none of these problems
is necessarily a deal-breaker. It just means that a little
extra planning and managing are necessary up front.
One of the tools available to assess skills,
aptitude and motivation is psychological counselling. At Robbinex,
we work with an industrial psychologist that tests both the
older and younger generations in a family transfer situation.
The goal is to determine areas where strengths
exist and where extra support is needed.
We worked with one family where testing revealed
that the son was very skilled in the areas of marketing, community
relations and promotion, but less comfortable in areas such
as purchasing and accounting.
His confidence in assuming ownership was compromised
by his lack of confidence in those areas. We recommended that
a "number cruncher" be hired to manage the purchasing and
accounting functions. This then allowed the son to assume
the leadership role successfully.
Another pertinent case was a family with which
we worked recently. The mother owned the business and had
devoted many hours to its development and growth. The daughter
was expected to take over, but testing revealed she was not
motivated to work day and night to do so.
Although she wanted to please her mother by assuming
ownership, the daughter had witnessed first-hand the sacrifices
her mother had been obliged to make to be successful, and
wasn't sure she wanted that kind of life.
We worked with this family to create a new management
structure and a new distribution method for their product,
both of which required less of a time commitment from the
daughter.
In this and other small businesses, such as construction
contractors, it is important to ensure that, if more than
one family member will be involved in the ownership of the
business, the infrastructure can withstand the impact to the
bottom line. While the business may have operated successfully
for years by Mom and Dad, it may not be able to support two
separate families' financial needs.
It is also very important to have a clear delineation
of responsibilities and authority established if there is
going to be more than one owner working in the business.
The secret to a successful intergenerational
transfer is a structured plan for the takeover. Once the potential
trouble spots are identified, a plan can be put in place to
overcome them.
Such a plan might include a management transition
period, special training for the incoming owner and definitions
of appropriate roles for the family members involved.
In addition, we strongly recommend psychological
testing when a business is being transferred within a family.
It's a constructive step toward managing the complexities
of keeping things "in the family".
Handing a business down to a son or daughter
can be a positive move for all concerned - if it's managed
correctly.
Doug Robbins is the president of Robbinex
Inc. and has been selling businesses since 1974. He may be
reached at 1-888-ROBBINEX or at www.robbinex.com Robbinex
specializes in the sale of privately owned businesses.
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