Family Business Transition – Focus on Things You Can Control

by | Mar 9, 2010 | Change Management

Listen to this Radio Show
I was reminded of the topics we covered two years ago through a number of conversations with Financial Planners. Two things stuck out in terms of their frustrations, especially with business owners.1.  Clients don’t want to reveal all their assets the planner2.  Clients will “dither” on the end game. Some listeners will be thinking, rather skeptically, about the self interest motivating such frustration. But, for a minute, most  financial planners are well motivated and they can’t build a book of business by not doing two things really well:1. Know their clients really well2.  Act in their best interests
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Other related conversations with businesses owners about when and how to transition:

  • A fast expanding food broking business which is rapidly expanding and the founder is59yo and his son is 32yo have no transition plan
  • A printing company where the 52yo owner was returning to work after a major illnessand his 28yo son ran the business very well in his absence. The owner wants to retireat 60 yet thinks it is too early to plan his transition
  • A environmental remediation company’s owner got caught by the recession and had topull back control from his inexperienced management team.

So, Nick, what is your theme this week?
“May you live in interesting times” Old Chinese curse. Readers don’t want another recital
of the recession litany. Yet, there is opportunity in any downturn.Yes, conditions are unpleasant with loads of “turbling” BUT….

“If you can keep your head when all about you are losing theirs and blaming it on you; If you can trust yourself when all men doubt you, But make allowance for their doubting too; . . . If you can meet with triumph and disaster AND treat those two impostors just the same . . Yours is the Earth and everything that’s in it.” (Kipling)

My message is for business owners in this blog is  –

Don’t waste time worrying about things you can’t change – Direct things to things you can control: this choices on how are you going to move forward.
That’s easier said than done, in this economic climate
Oh, I am not talking about easy but I am talking about the need to be proactive…
Since the recession started, for Baby-Boomer business owners face the same dynamics of their condition.1.  78m Boomers of whose wealth is held in 12m privately owned businesses2.  70% will change hands in 10-15years3.  Trillions of dollars will transferNow think of the business owner with 180,000 hours, say, invested in their business;
What are they thinking?

  • Will I be able to work  less in next five years?
  • Consider leaving the business?
  • How do I get out?
  • I don’t know what the business is worth?
  • What is the best time to sell?

Surely, though, most owners are in survival mode and need to protect their business these days
Why not combine the two?Expand strategy to accomplish both – the reality is they are not mentally exclusive.
In fact, there are real problems if you don’t keep them integrated.Remember the quote “keeping your head”
This is not the time to abandon business planning.It takes at least 2-3years to successfully implement in NORMAL Times. You can argue now
is the right time to put in place tactics that will increase business value when the recession ends.

OK. So what can business owners do now?
Well, the business cycle is alive and well, there’s still timing when you business is at its optimal value.

If you don’t think ahead: you will be in the herd!
9 out of 10 owners who don’t get  anywhere close to what they expected or want for their business, delay in making a decision and for mature businesses “dithering” erodes the transaction value.

The fact is that less than 40% of businesses successfully transition their business…. Yet,
84% say the need the proceeds to finance their retirement.
There’s been no change to owners lack of urgency:

  • 58% don’t have any plan
  • 33% informal
  • Only 9% have a formal written plan

Ummm, what’s the connection between 1 in 10 get what they want and 1 in 10 have a formal plan.
When are owners thinking of exiting their businesses?
28 % within 5 years, 52% plan on exiting within next 10 years.
Like retirement and personal planning, transition planning works best the longer the timeline to plan and
implement = optimal value.
With such compelling stats for just how much is on the line, what’s holding people back?
There are the three fears of transition:

  • Fear of Loss Wealth
  • Fear of Loss of Control
  • Fear of Conflict
What are the main reasons for not having a succession plan?
It’s a bit like Letterman’s Top Eight Reasons (Excuses) for not getting the right return on 180,000 hours of:

“Blood, Sweat, Toil and Tears! (Churchill)

Top 8
8. Too scary
7. Thoughts of the end
6. Family/Employee conflict
5. Don’t want to think of leaving
4. Can’t get adequate advice
3. Too complex
2. No Time
No. 1 – No time to plan!
In this recession why has transition planning become even more important?
Good question,There will be  more market competition – fewer buyers than sellersWith downward pressure on business values a premium will be placed on well run businesses that stand out
from the pack and can differentiate themselves in the market placePlanners – IO Non-Planners – O Which team do you want to be on?

How does the Family put a brake on transition planning?
Well. Many owners consider passing their business on to their children,It’s one of the most challenging
decisions a parent-owner faces.Impartiality is critical in addressing these emotional family issues and the effects on the business

What are the main reasons for no or little planning?
Sadly, many family-owned businesses are shut down because the Family didn’t handle the succession issue: Why?

  • Parents stays on too long
  • Parent steps down too soon before successors are trained or sufficiently experienced in the leadership roles
  • Fail to face the realities that many children don’t want to be involved with the business or at very least shouldn’t be forced into working together

The reality is that the odds are not stacked in their favor:
30% – 2nd Generation survival
12% – 3rd Generation survival
3% – 4th Generation survival
My Blog Tip
Ask Yourself:What comes first? The Transaction?OR The Management of the Transition?OR The Strategy for the TransitionDon’t put the Cart before the Horse.Talk to your trusted advisor – CPA, Lawyer etc. and ask”Who do we need to create and implement the plan?

Great, but how can this help me?

This is probably the first thing on your mind after reading this Blog.
How about asking us?  The first call is free!  Just email me to set it up.
Don’t wait, get The Crispian Advantage working for you!. If our conversation leaves you needing more, we offer at a reasonable fee telephone and video coaching improve bottom line results.
If that still doesn’t do it, we’ll work with you on a solution.

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