By Christopher J. Pratt, CBC, Vice President, Business Development, HORAN Emerging Business Advisors
Do I have your attention?! I realize succession planning does not constitute the highest form of stimulating subject matter; however, this is not a topic to be dismissed or tabled for another day. Ask anyone who has worked with, or for, a privately held or family business for any extended period, and they can point to a cautionary tale of a company left scrambling after the unexpected loss of a person, or persons, imperative to those operations. Examples of loss come in many forms, including death, disability, or the exodus of irreplaceable talent.
In most circumstances, “scrambling” as a result of any such loss only happens in the absence of appropriate planning. As our 35th U.S. President, John F. Kennedy, declared in his 1962 State of the Union Address, “The time to repair the roof is when the sun is shining.” In other words, do not wait until a crisis strikes to fix a known vulnerability.
If you are looking for me to back up hyperbole with statistics, here goes: a recent article in Kiplinger stated “Only 30% of family-owned businesses survive the second generation. Many of these failures result from a lack of succession planning.”*
A staggering figure if you ask me, especially when you consider the fact that succession planning is not a novel concept.
At a recent HORAN GROW Series event, our own Michael Napier, CFP®, Vice President, Wealth Management at HORAN, provided some critical takeaways regarding people risk management and succession planning:
- Many key employees within an organization need an exit strategy, not just the CEO. These include top management, sales and chief operating roles.
- The first steps to creating a succession plan include starting the conversation early with your corporate accountant, attorney and other advisors; identifying successors; and funding the buy-out strategy.
- Key-person life and disability insurance is the best way to protect your business from the financial risk of losing a top employee; these policies can be purchased relatively inexpensively in comparison to the value they bring to the organization.
- It is common for employers to retain key talent by providing stock-option or deferred-compensation plans, but also make sure to put a non-compete or non-solicitation agreement in place to mitigate the risk should that person decide to move on.
If your business does not have an appropriate succession plan in place, I have some good news to share. You still have time, but your time is now. Members of the Goering Center are truly blessed to have the bevy of available resources, education and expertise the Center provides. Perhaps none more important than succession planning. If you are not going to listen to me, I ask that you listen to former President John F. Kennedy. Now go fix your roof while the sun is out.
*2020, Kiplinger article entitled, “Effective Succession Planning Leads to Business Longevity”
HORAN is a Goering Center Sponsor, and the Goering Center is sharing this content as part of its monthly newsletter, which features member and sponsor articles.