Licensed -Illinois Secretary of State
Securities Division
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Family-Owned Businesses Succession planning can certainly be a difficult process. Actually, most end up doing it poorly. But, when it is done well, with the right kind of support, it can mean the difference between a comfortable retirement and a struggling retirement, between great family ties and strained family ties. Done very well, it can dramatically improve the finances and subsequent quality of life for all stakeholders in the process. Potential Pitfalls At JAI, we realize that there are many pitfalls that make embracing succession planning difficult, especially in a family owned enterprise. • First,
succession planning essentially means eventually letting go, and handing
over control, which is hard for most of us. It is particularly difficult
for the Entrepreneurial Personality™. And, candidly, when avoidance and postponement rule the day, critical decisions and business plans with substantial ramifications are made at the last minute. This reactive stance nearly always leads to a suboptimal outcome for all involved. It typically takes years to position a business for successful transfer to a family member or key employee. By failing to plan, the available alternatives are typically narrowed to either a third party sale or liquidation. Valuation is often depressed because under-appreciated and under-developed employees are not productive employees. They are considered a “flight-risk” under new ownership and this further reduces the market value of the firm. Recommended Process Given these realities, the JAI team includes a seasoned psychologist with training in succession planning as a vital resource for family business owners. Our psychologist will provide a safe context to proactively face difficult topics that can significantly impact the financial future of the owner, and the recipients of the business. The process involves helping you as an owner begin giving words to your ideas and concerns and fleshing out what conversations need to happen in order to begin moving forward with a bona fide succession plan. You as the owner, are always in the driver seat. The psychologist’s role is to help you “unpack” your dreams and concerns, and then to facilitate the critical and loaded conversations with family members to help ensure the best resolution and shared ownership in shaping the future. As the process culminates, the owner is well-positioned to create the best future with a much greater sense of peace and satisfaction about the entire situation. Critical items for discussion in the process include: • What is the current reality? What is the performance trend of the business? Who are the likely candidates for succession? How well are they suited for the role? What are their development needs? How healthy or strong are the family relationships? • What are the expectations? What does the owner want financially for retirement? How will the owner eventually “let go” of the reins, and in what fashion? What are the expectations of the children and key staff? Are these expectations realistic? • What needs to be done? What needs to be discussed with family members? What is the timeline for transition? Who will do what and who will get what? What kind of support and training is needed to best ensure the successful transition and success for the new owners? Again, as these questions are fleshed out over time, and as the critical conversations are successfully navigated, a solid plan and process is created to the best possible financial and relational scenario for you and your family. Summary Given the emotionally loaded nature of succession planning in family businesses, the process typically goes poorly. It often leads to substantial reductions in the value of the business and retirement monies, and just as painful, , culminates in strained and damaged family ties following a poor transition. We provide a safe and skillful context for discussing the process and potential outcomes. . By facilitating family meetings and conversations, once considered taboo topics or possibilities are navigated and strong plans for a excellent transition are developed. The investment in the process creates a much greater likelihood of a comfortable retirement, a healthy and “clean” transition of ownership, and the continued success of the family business. Staff Development for Succession Planning Like family succession planning, the strength and depth of your management team plays a critical role in the valuation of your business. Firms with a capable management team command a valuation premium. That strength would also be reflected in the historical performance of the business. Our psychologist dialogue with you concerning your plans and aspirations for the management team. Following their assessment, our feedback will give you an objective basis for refining and implementing plans to maximize interim performance and remuneration upon exit. Destructive Conflict Between Partners Healthy debate and constructive conflict between business partners is invaluable. Habitual avoidance and toxic conflict between partners can be deadly. Strained partnerships (at the very least) make going to work much less rewarding, and eventually will make the firm less competitive. At the extreme, business partnerships in a tailspin can cost the partners their livelihood and wreak havoc in the lives of their employees as well. Sometimes, outside help is the only way to turn something around. Our psychologist is uniquely equipped to give you the best chance at stopping the destructive dance between partners. A skilled third party can identify the core issues and habitual impasses. After creating a climate conducive for dialogue, the parties may communicate clearly and constructively around the real issues that are the source of the toxic conflict. This creates two positive possibilities. First (and ideally), to create a new set of communication practices and patterns will be established to strengthen the partnership. This will enable a lasting, enjoyable success, and a much stronger business. If too much damage has already been done, dissolution of the partnership may be the preferred alternative. A clear recognition of this situation allows the other professional advisors to begin charting a new course for the clients. The Entrepreneur’s Achilles’ Heel You’re creative and insightful. You’re highly confident and know what needs to be done. You love to be involved in every facet of the business and make the bulk of the decisions. This business is your baby. That’s fantastic until your business has succeeded beyond your capacity, or, when it’s time to sell. Entrepreneurs with their unique personalities often wrestle with real challenges around scaling and delegating that are vital to creating a business that can thrive without your pervasive presence. When you’ve unwittingly created an organization that promotes dependency and passivity in your subordinates, the company rarely continues to succeed when you retire or step back from the day to day operations. This creates a significant problem with the eventual valuation and sale of the business, as the business will very likely fall apart without you. Our psychologist can help you take a candid look at your leadership style and walk with you through changes that are essential to create leaders and structures that will help ensure a successful transition and ultimate sale of the business when you are ready to move on. Further, you will enjoy the unique satisfaction and peace of mind that goes with equipping the next generation to continue the legacy that all your hard work has helped to create. You are invited to contact us if this service may be of help to you.
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