By Mike Mess, CFO, CEPA
Business succession planning is a tedious task that can quickly end up at the bottom of the to-do list if you’re not careful. As mundane as it may feel, it is a critical component of the long-term success of a business, particularly family businesses.
Considering a third of family business owners have no formal estate plan in place beyond a will, and 47.7% of family business failures resulted from the death of the owner, succession planning seems to be a constant struggle for many family businesses. Here are 3 reasons why many family business owners delay succession planning and what you can do to overcome them.
1. Your Business Is Thriving
There’s a common saying that goes, “Why fix it if it’s not broken?”—meaning, why make changes if things are going well? This mindset is often applied to family business succession planning. When business is booming, there’s a tendency to revel in the growth, and plan for more of it, rather than plan for the worst-case scenario.
In this case, the worst-case scenario is what will happen if a sound succession plan is not implemented. Are you prepared if a health issue or other factor leads to the unexpected departure of a key person or owner? You have no way of knowing what the future will bring, but the odds are high that unexpected events will occur. That’s why having contingencies, like a clear succession plan (with solid direction and written wishes), in place is crucial.
At Veracity Capital, we can help you develop a customized succession plan that works for you. A thriving company is only as strong as the succession plan that keeps the business operating through uncertainty.
2. You’re Stuck in the Minutiae of Business Operations
As a business owner, it’s easy to fall into the trap of doing everything yourself. After all, no one cares as much about the business as you do. But that is a time and energy drain that will end up costing you in the long run. Many business owners delay a succession plan simply because they don’t have the time to get to it. There’s always tomorrow, or next year, or some other date which is better for succession planning than today. Then, before you know it, 10 years have passed and you are no closer to your transition goal.
You can overcome this obstacle by breaking down the succession plan into smaller, less time-consuming tasks. Start by asking yourself:
- Who is the ideal candidate to take over the business?
- When do I want to be out?
- How long will it take to complete the transition?
- Do I have the right team of advisors around me?
Once you’ve outlined the basics of your plan, you can begin to take larger steps toward your goal, including seeking input from professionals, drafting legal paperwork, and communicating your plan to other family members.
3. You’re Hesitant to Let Go
It’s not uncommon for family business owners to feel a deep connection to the business that may make it difficult to let go and officially pass the torch to the next owner. In fact, 30.5% of family business owners state they have no plans to retire, ever.
It can be difficult to move on from the business if you have too much personal wealth tied to the company, as is often the case for family business owners who have built everything from the ground up. In this case, you might not have enough value in your business to sustain the retirement lifestyle you desire. The earlier you start the succession planning process, the better you can prepare for the long-term costs of retiring.
For those who simply have a difficult time letting go, consider gradual succession instead. You can allow the next owner or management team to handle problems with your oversight first, before withdrawing from the business completely. Not only will this make the next owner feel like a valued and important part of the business, but it will also give you a chance to hone their skills (if necessary) and provide important feedback while slowly transitioning to full retirement.
Get Started Today
Regardless of which stage your family business is in, it’s never too early to start thinking about a succession plan. Don’t let procrastination get in the way of your business’s long-term success. To learn more about how we can help, call us at 949-345-1954 or email us at firstname.lastname@example.org. You can also schedule a meeting online or visit our website at https://www.veracitycapital.com/newport-beach-location/. We look forward to hearing from you soon!
As a Founding Partner of Veracity Capital, Mike set out on this endeavor to create a profoundly personal boutique for his clients with deep institutional execution. Mike serves as Chief Financial Officer and Wealth Advisor. As CFO, Mike is responsible for the company’s financial function and helping guide the direction of the firm. As Wealth Advisor, he helps his clients achieve their personal and professional goals through the lens of wealth management and financial planning.
For more than 15 years, Mike has developed exceptional wealth management skills for business owners. He believes this process of best managing the family wealth starts long before any transaction event. Clients engage Mike to help maximize the value of their business early, best capture that value through the transition of the business, and then manage the wealth created following the transaction. As a business owner himself, he is acutely aware of these stages where he adds value before and after every transaction.
Prior to founding Veracity Capital, Mike invested over a decade of his time with AYCO, a Goldman Sachs Company. During this time, he built out a division responsible for meeting the needs of its institutional and private clients, which included C-level executives and entrepreneurs.
Mike earned his Bachelor of Science from California State University, Northridge, and his MBA (Hons.) from Chapman University. He also holds the CEPA (Certified Exit Planning Advisor) designation. Mike is a member of GoBundance, the high-level mastermind group for successful entrepreneurs. He is also active with Vistage Worldwide, a global CEO peer group.
Advisory services offered through Veracity Capital, LLC, a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.