Your Primary Succession Plan Is For Emergencies

Everyone puts off business succession planning until it is almost too late. Some wait longer than that. Whether you think your succession plan begins the day your child is born or whether it begins the five years before retirement or whether it, like Henry Ford, begins on your death bed, there is one to it that should be addressed by everyone and today is the day you should start.

The primary succession plan involves the conditions when you are the one who will give up control for a while and get it back some other day. Like after your bypass or car accident or other disability that will keep you from coming into the office for an extended period. Even if you expect to sell your business to strangers someday, you need to go through this process at a minimum.

Start with questions:

  • Do you think you will get better faster if you have less stress?
  • Will you have living money?
  • What duties do you have that no one else covers or perhaps there are some that no else even knows you do.
  • How will your people deal with customer, supplier, engineering or financing meetings that are booked ahead?
  • Who else could sign corporate documents if necessary? Things like leases, employment contracts, purchase orders, other agreements.
  • Who knows the combination to the vault or has the other key for your desk?
  • Who can sign checks? Payroll comes when? That is likely the first important time deadline.
  • What message do you want to put out to customers and other stakeholders regarding your incapacity?
  • If you are not there to make decisions, do the decisions go away? Probably not. More likely they multiply because uncertainty changes things. Who should make them?
  • Who will be in charge? Will they have any hope of knowing what they need to do?
  • How big should the cash cushion be? Your backup team may not have your ability to juggle.
  • How long can this situation remain this way before different decisions need to be taken?

If you do not know the answers to all these questions, you are normal. Now set about creating back-up. Once done, keep it up to date. Just like your computer system. You have three copies of that right? If not rethink that too.

The more difficult decision happens when it becomes clear you are not coming back to work. It could be an unrecoverable disability or it could be death. The back-up plan probably means that there is a business still there, albeit a wobbly one. How do you get value for it?

Ideally, you sell it. To whom is harder and there is no perfect answer. You, your family, your employees and maybe your customers, suppliers and banks are in a tough spot. Here is a thought that has worked, and may work again.

Look to a competitor.

They probably won’t have to learn the business to make it work. All others will and they will want a discount because of that.

Who are your competitors? Suppose there are three or four of you who are sharing the market. Who should be the first proposal go to?

It depends.

Suppose you are number 2 in the market. Approach either number 3 or number 4, whoever seems to have the financial capacity to absorb you.

Why not number 1? Because they have less incentive to buy. They fully expect to get the largest share of your customers if you fail. No cost growth. Number 3 or maybe number 4, can buy years of difficult growth in one gulp. They are more likely to pay a fair price.

In the interim, you probably should put some things about the sale to paper. Who you think would be the competitor to contact, who should be the person to contact, what you know about them and their business views that will make them a reasonable candidate. The principal factor will be integrity. If you think they will try to take advantage of the situation, there are no other conditions that will overcome that flaw.

If you are a professional practice, you need to set it up well ahead of time. In this case, the bigger competitor may be the best prospect. They have more flexibility to provide some staff to help your folks through the hard times. You may be the only person in your firm with some of the specialized knowledge. Big firms have specialists available.

Succession is hard enough when you have the time and the ability to influence the path. It is hideously difficult under pressure.  Some small steps now may make it manageable.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. | Twitter @DonShaughnessy | Follow by email at moneyFYI

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