Over 90% of businesses in the U.S. are family owned, but less than 30% make it to the second
generation and fewer than 12% make it to third generation. The key reason cited is: they had a
poor, or worse yet, no business succession plan. In fact, recent surveys indicate that only 30% of
business owners have a succession plan.

Whether your manufacturing or wholesale company has been in the family for years or you built it from
the ground up, it is critical that you develop a succession plan.

Just as there is a human life cycle, most business owners fail to understand that there is also a business
life cycle. It begins with the conceptual/idea stage, then the actual start-up period, next comes the growth
phase, followed by the well-established maturing years and then finally the exit or retirement phase. The
most common mistake most business owners make is that they dont plan far enough in advance for the
exit phase. Most experts agree that succession planning should begin anywhere from 10 to 15 years
before retirement. Even if you are one of those people who feel that you never will retire, a succession
plan is still needed in the event something unforeseen happens to you such as a serious illness, disability
or even death.

Now that you understand the importance of developing a plan for your distribution business, here are the
five key steps:

1. Identify whats important to you. This means deciding at least generally, how you wish to spend the
rest of your life as well as what you want to happen to your business. Consider holding a family
meeting to engage in an open and honest discussion regarding your goals and objectives. Failure
to do so may lead to unfortunate and contentious situations that could not only tear apart your
closely-held business, but your family as well.

2. Decide who is most capable of running your company. If you have more than one potential
successor, consider giving each candidate responsibility for the part of the business for which he
or she is best suited. Look beyond your heirs for the most competent successor. Sometimes key
employees may be a viable option through whats known as an Employee Stock Ownership Plan
(ESOP). If you cannot think of anyone qualified to assume control, you may be better off selling
to a third party.

3. Develop a mentoring program. Your goal is to ensure that your business will continue to run
successfully without you. Thats why it is important to spend time grooming your successor to be
sure that he or she has thorough training and quality leadership experience. You should even
consider seeking this persons input in the development of the plan. While mentoring your
successors, you should also transition your relationship with your customers and suppliers.

4. Document your succession plan. With the help of your accountant and attorney, write down every
detail of how you would like your company transitioned. Your strategy should include choosing
the right amount of insurance, maximizing valuation discounts to reduce the tax implications and
developing a buy-sell agreement. Share this document with all interested parties—especially
family members. Be sure that your succession plan is in alignment with your other estate planning
documents including wills as well as the titling of assets and insurance policies. All too often, a
succession plan cannot be implemented as intended because it conflicts with these other items.

5. Review the plan regularly. Do not file your succession document away and forget about it. Changed
circumstances—such as rapid company growth, the departure of a potential successor and even
significant changes in tax laws—are some situations that may require your original plan to be
updated and revised.

Developing a business succession plan should not be done in a vacuum. It requires communication
between your family members as well as the team of financial and legal advisors involved in the process.
When developed and implemented properly, it can help provide financial security for you and your family
in addition to future generations.

About Cowan, Gunteski & Co., P.A.

As a diversified certified public accounting firm, Cowan, Gunteski & Co., P.A. is committed to being an
active partner in its clients growth by delivering value beyond accounting, innovative solutions and
consistent exceptional service. To discuss your particular situation, contact Stephen Reed, CPA, Director
Manufacturing & Distribution Services Group at 732-676-4100 extension 4070 or by e-mail at
sreed@cowangunteski.com. You can also visit our Web site for more information on the services available to meet the unique needs of the manufacturing and distribution industries.

Duration : 0:10:33

Over 90% of businesses in the U.S. are family owned, but less than 30% make it to the second
generation and fewer than 12% make it to third generation.

The key reason cited is: they had a poor, or worse yet, no business succession plan.

In fact, recent surveys indicate that only 30% of business owners have a succession plan.

Duration : 0:10:33

Whether your manufacturing or wholesale company has been in the family for years or you built it from
the ground up, it is critical that you develop a succession plan.

Just as there is a human life cycle, most business owners fail to understand that there is also a business
life cycle. It begins with the conceptual/idea stage, then the actual start-up period, next comes the growth
phase, followed by the well-established maturing years and then finally the exit or retirement phase. The
most common mistake most business owners make is that they dont plan far enough in advance for the
exit phase. Most experts agree that succession planning should begin anywhere from 10 to 15 years
before retirement. Even if you are one of those people who feel that you never will retire, a succession
plan is still needed in the event something unforeseen happens to you such as a serious illness, disability
or even death.

Now that you understand the importance of developing a plan for your distribution business, here are the
five key steps:

1. Identify whats important to you. This means deciding at least generally, how you wish to spend the
rest of your life as well as what you want to happen to your business. Consider holding a family
meeting to engage in an open and honest discussion regarding your goals and objectives. Failure
to do so may lead to unfortunate and contentious situations that could not only tear apart your
closely-held business, but your family as well.

2. Decide who is most capable of running your company. If you have more than one potential
successor, consider giving each candidate responsibility for the part of the business for which he
or she is best suited. Look beyond your heirs for the most competent successor. Sometimes key
employees may be a viable option through whats known as an Employee Stock Ownership Plan
(ESOP). If you cannot think of anyone qualified to assume control, you may be better off selling
to a third party.

3. Develop a mentoring program. Your goal is to ensure that your business will continue to run
successfully without you. Thats why it is important to spend time grooming your successor to be
sure that he or she has thorough training and quality leadership experience. You should even
consider seeking this persons input in the development of the plan. While mentoring your
successors, you should also transition your relationship with your customers and suppliers.

4. Document your succession plan. With the help of your accountant and attorney, write down every
detail of how you would like your company transitioned. Your strategy should include choosing
the right amount of insurance, maximizing valuation discounts to reduce the tax implications and
developing a buy-sell agreement. Share this document with all interested parties—especially
family members. Be sure that your succession plan is in alignment with your other estate planning
documents including wills as well as the titling of assets and insurance policies. All too often, a
succession plan cannot be implemented as intended because it conflicts with these other items.

5. Review the plan regularly. Do not file your succession document away and forget about it. Changed
circumstances—such as rapid company growth, the departure of a potential successor and even
significant changes in tax laws—are some situations that may require your original plan to be
updated and revised.

Developing a business succession plan should not be done in a vacuum. It requires communication
between your family members as well as the team of financial and legal advisors involved in the process.
When developed and implemented properly, it can help provide financial security for you and your family
in addition to future generations.

About Cowan, Gunteski & Co., P.A.

As a diversified certified public accounting firm, Cowan, Gunteski & Co., P.A. is committed to being an
active partner in its clients growth by delivering value beyond accounting, innovative solutions and
consistent exceptional service. To discuss your particular situation, contact Stephen Reed, CPA, Director
Manufacturing & Distribution Services Group at 732-676-4100 extension 4070 or by e-mail at
sreed@cowangunteski.com. You can also visit our Web site for more information on the services available to meet the unique needs of the manufacturing and distribution industries.

Another advantage: options, such as buying life insurance to fund the stock ownership transfer, tend to be less expensive when the owner is 45 versus 65.

A child may have the right to inherit the business, but the right to manage the business must be earned.

Urge your children to work at least two years outside the family business so they can learn different skills and experience making mistakes.

Establishing an outside Advisory Board to help manage the transition allows trusted non family business professionals to help deal with the tough issues. This advisory board is constructed differently than a board of directors and can be a very cost effective vehicle for bringing good advice and experience from outside.

Conducting formal family meetings can help solve problems while they are small. Having experienced family business consultants like Family Business Experts lead the first few family meetings can help establish and keep the family focused on the rules, goals and objectives.
Develop non business interests.

Develop financial resources that are independent of the business.

The best succession plan might be to sell rather than transfer.

Sometimes, with family businesses, the focus is so much on succession that the most logical alternative is completely overlooked.

If the family strategic plan and the business strategic plan have been done, we see two situations where selling is the best alternative.

The business can’t evolve with the changing conditions or environment. This inability to evolve might occur because it can’t find the right people or because technology or environmental factors necessitate capital investment or expenditure beyond the ability of the family business to raise capital.
The business has not been able to find and develop a competent successor.

It is not easy for a family and business to objectively face reality in either of these situations and there is the stigma of “defeat” or “quitting” that is often associated with a decision to abandon a goal. But the harsh reality is that in either of these situations, failure is almost certain and will happen even if the family decides to ignore reality and try to continue with the business / transfer. So, failure becomes a matter of when not if.

In either case, early and realistic recognition will let the family sell the business rather than lose its investment and at least have the proceeds to carry on their goals in other forms.

Evaluate a competent successor

This starts with the key elements in the succession planning process where the family and the business identify the culture, mission and strategy, and who they need to lead them to fulfill the mission. This process will naturally identify skills and competencies and these should have been built into job descriptions and development plans for the successors. The successor’s progress in meeting and developing skills and competencies should therefore be extensively measured and documented by many people throughout the organization on a regular and continuous basis.

This evaluation process can be extended beyond just immediate supervisors within the business – the Advisory Board and customers and suppliers can also be incorporated into an evaluation process.

Less objective and more difficult to measure, but critically important, is to evaluate how the potential successor handles leadership and power. In a nutshell, can s/he take over the reigns of power and provide leadership that will be accepted by the organization and by the family. This is tricky to test and evaluate.

If the outgoing CEO shelters the potential successor, and decrees the authority, the successor isn’t tested against the “yes men” who are passive and accommodating – until after the outgoing authority is gone – then they rise in opposition to thwart and block the previously sheltered successor.

At the other extreme, the “shark tank” approach turns two or more potential successors loose in the business and lets them fight it out.
Either approach can be devastating to the business and neither offers any realistic prospect that a suitable successor will survive. [The sheltered successor might well not toughen up under pressure; sharks don't necessarily make good leaders.]

A realistic outgoing CEO and family often seek the help of outside advisors or an Advisory Board to ensure that the job rotation and/or special assignments for the successor include situations where s/he will have to seize or assert some authority to be successful. Over time, the successor will have built a solid power base from within rather than just being handed power.

Perhaps even more difficult to measure, but critically important, is motivation. Does the potential successor really want to assume control? S/he might want the job, even really want it passionately, but for reasons such as being the eldest, for the power or prestige it might bring them…or for any number of other reasons… but is it really what they want to do?

Fairness = equal performance expectations

In the obstacles to succession, we noted that parents often felt that fairness meant giving each child an equal share of the business when they might not have contributed equally to developing that business.

Another aspect of fairness is in the area of performance expectation. Unless children earn their position on the basis of merit, unless they are expected to be accountable for their performance in the business just like any other employee, it will not be possible for them to effectively assume leadership after a succession / transition. So we have found that a key to success is to set the standard for performance and accountability from the earliest involvement.

Less frequently, a parent sets the standard much higher for family members rather than lower and we have found this to be just as much of a problem.

Set a standard for the business – family members must leave family behaviors at home and act like an employee. [Work outside the family business for part of one's career really helps here to show the standards of behavior that other organizations set.]

Graduated retirement… but set and stick to a final date!

As the time for succession approaches, take longer and longer absences – both for the outgoing CEO to get used to being away, for the opportunity they offer to evaluate the potential successors, and for the organization and its customers and suppliers to get used to the fact that it can operate under the planned new leadership. But announce and stick to a date of withdrawal / succession.

As for the “outgoing” person having a continuing role, we have seen this happen admirably – and we have seen it fail spectacularly! The key to success is clarity and self-discipline. If an ongoing role is agreeable, define its role, responsibilities, authority and accountability like any other job. Stick to those parameters and make sure that everyone knows that is all you are there for!

About the Author

Don A. Schwerzler and David Jones are Partners at the Family Business Institute – a special resource for family-owned and closely held businesses (http://www.family-business-experts.com).

Technorati Tags: succession planning hints, succession planning tactics, succession planning tips

Expert: Roger Groh
Contact: www.grohasset.com
Bio: Roger Groh is a personal asset manager, and the head of Groh Asset LLC.
Filmmaker: Bing Hu

Duration : 0:1:16

Technorati Tags: business, business ethics, business etiquette, business finance, Business Management, employees, investing, profit

View any number of our other 27,000 sessions from over 280 conferences by going to http://www.prolibraries.com

Speaker(s):

Tracy Oishi, CLU, ChFC, LUTCF

The Ethics Course – Society of Financial Service Professionals

Financial Service Forum 2008

The FSP Forum is the premier educational meeting for the financial services profession. It focuses on continuing education, with a strong emphasis on advanced, practice-oriented instruction by world class speakers and provides CE credits for the credentials accepted for Society membership. A general session case study features a distinguished panel helping a family sort out a business succession planning problem. Complementing the advanced technical education are eight practice management sessions that provide important information on keeping your practice running smoothly and profitably.

This interactive workshop on professional ethics in practice is approved to meet the two-hour CFP Board ethics CE requirement as well as most state insurance requirements. The class will use case studies to illustrate relevant, thought-provoking issues. Engage in open dialogue with the instructor and fellow participants, enhance your ethical decision-making skills, and relate the course material to applicable principles of both the CFP Board Code and the FSP Code of Professional Responsibility.

0b715e3cb03037f85358b2a11a462f4c

Duration : 0:2:4

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