Tag Archives: planning

Why Do We Wait Until The Last Minute?

Joe Schmieder

“We have a looming transition with no real plan.  Not sure why, but my father has just now decided he would like to get out of the day-to-day operations and sell the business to my brother and me before the end of the year!”  Why do senior family leaders often wait until the last minute to address succession?  Is it simply human nature?  Hard charging family entrepreneurs are more inclined to work on growing and developing the business than to work on family leadership and ownership planning.  Succession is not a topic that people dwell on because it usually only happens once in a generation.  It is tough when a patriarch or matriarch has to select the next leader amongst three children or go outside the family for leadership.   Deciding how to transition ownership is another difficult task – should the stock be sold, gifted or some combination?  Should those family members working in the business get more stock, a controlling interest?  How can this be done fairly? These are tough questions that cannot be addressed quickly.  Thus, they tend to get delayed or avoided.   Yet the keys to successful transitions are communicating and planning.  Most family business leadership and ownership transitions take three to ten years depending on size and complexity of the business and family.   Since succession is long-term, complex and emotionally-tied to family dynamics, a succession task force that includes independent outside board members or othertrusted advisors often works extremely well to keep the process objective and moving forward.   The main goal of a task force is straight-forward:  to ensure an effective leadership and ownership transition.   Members of the task force provide guidance and checkpoints to keep the process moving forward in a positive manner, making adjustments along the way when needed.  This takes a huge burden off the senior family members and greatly improves the probability that both the family and business will continue to prosper in the next generation.


Parallel Planning for Family Business

Otis Baskin

Planning for the business and family in an interrelated and systematic way can seem artificial and uncaring from a family perspective.  Planning structures, decision processes, policies and procedures for family relationships in the way you would design business relationships may seem unnecessary and uncaring at first glance.  However, when a family owns valuable assets together that benefit from a synergistic relationship, like a functioning enterprise, it is important to plan both family and business relationships. 

The relationships within the family can have a powerful impact, positively or negatively, on the success of the business.  Divisions within the family can lead to divided and even competing interests within the business.  Likewise, differences that arise from business relationships can destroy family harmony.  When families attempt to avoid these problems by disassociating their business and family they only make things worse.  The business and the family that owns it are unavoidably linked.

For example, many business owning families pass ownership down through generations based upon family branches.  This is a reasonable and logical way for parents to distribute their wealth among their children.  However, if this is done without parallel planning on the family side it can have the unintended consequence of dividing the family.  If family branches develop into voting blocks that elect “champions” to positions on the board of directors they may not feel a fiduciary responsibility to all shareholders.  Similarly, family branches that are larger tend to have individual owners with smaller percentages of the voting or beneficial shares.  This can create an atmosphere where members of a large family branch become disinterested because they do not have the same influence and benefit as members of smaller branches.

Good structures, policies and decision making processes for both the family and business can serve to strengthen family ties, support good business governance, and allow estate planning to benefit the family branches as businesses are passed successfully from generation to generation.


Contingency Planning

Dana Telford

Contingency planning is important, but difficult to get excited about.

Consider the true story of a man (we’ll call him John) who built a healthcare business from nothing into a $300 million conglomeration of facilities and operations in 6 different states.  At age 58, at the behest of his persistent family business consultant, he developed a simple, three paragraph contingency plan that outlined his wishes should he pass away unexpectedly.

Essentially, the plan called for John’s wife (we’ll call her Lynnette) to take over as the interim CEO of the company for a period of 12 – 18 months while his most trusted advisor (Steve) started the process of selling the company to a strategic buyer.  Though Lynette protested, arguing that her lack of management training and experience would potentially hurt the company, John was adamant that her main priority would be to cradle and protect the culture that he’d worked his entire career to build.

It didn’t seem to be a point worth arguing much about – after all, John’s father had lived to be 84, so his exit did not seem the slightest bit imminent. 

Two years later John died tragically of a heart attack at age 60. 

Once the shock of John’s passing became bearable, Lynette and Steve put in motion the steps outlined in his contingency plan.  She took over as interim CEO, and did a fine job.  The employees rallied around her as their new leader, buoyed by compassion for her circumstances and human decency. 

Steve contacted strategic buyers and let them know of their intent to sell.  A deal was struck and consummated within the 18-month window that John had identified in his plan.  The proceeds, coupled with solid estate planning already in place, provided a solid financial foundation for Lynette and their family.

Now, many years later, Lynette is able to pursue personal goals and activities thanks in some part to a simple, three paragraph contingency plan.


Goal #1 Don’t Get Killed

Goal # 1 – Don’t Get Killed
Goal # 2 – Protect My Stuff

By Dana Telford

Let’s imagine that you, the business owner, lived 1,000 years ago in feudal Europe. You were a Lord or Lady of noble birth and had valuable assets – land, weapons, children, jewels, gold, servants. As such, your daily activities centered around two goals – 1) don’t get killed and 2) protect my stuff.

As part of your strategy for reaching these goals, you built a giant wall around your assets and hired sentries to stand guard. You trained them to shoot arrows at or pour any assortment of hot liquids on would be invaders.

Over the years you got better and better at protecting your life and your stuff. Instead of using wood for walls, you used rock and stone. Instead of just one you built 3 or 4 concentric walls, each getting higher and thicker as they got closer to your lair.

You built your castle near water – to make sure no enemy could starve you out. You dug a moat to keep invaders at bay. You then dug it even deeper, following the logic that attackers wearing heavy armor and carrying lead weapons don’t float. You built a drawbridge and portcullis and only allowed entry and exit from your castle through one door.

You succeeded in making your castle so ominous and defensible that would be attackers no longer bother to put your fortress on their short list of possible overthrows. Without the constant threat of invasion, your army became lazy, playing cards and drinking pints over scrambled eggs and bacon. You turned your focus to squeezing more margin out of castle operations – raising the rents for the blacksmith, the miller, the baker, the candlestick maker. You have prospered, at least until now.

Your comfort is your greatest enemy, whether Lord/Lady or business owner.

May I suggest that each of us take the time, every month, to stand on the highest walls of the castle and peer out into enemy territory. Ask yourself, and your key managers, “how defensible are we today compared to yesterday? What are our greatest strengths? Where are we most vulnerable to attack and invasion? Are there greener pastures nearby that provide better shelter, resources, value? Who poses the greatest threat to our peaceful and prosperous existence?”

The answers to these questions, asked consistently and considered carefully, may save you from being thrust through by a barbaric competitor seeking to seize your assets and steal your market share.