Succession Planning for Small and Family Businesses Navigating Successful Transitions

Description

Who will lead your organization into the future? Have you created the systems to properly implement required succession transitions? Have you put the financial tools in place to fund the transition? Do you want a plan that connects with your personal and company core values? When do you include timely planning related to strategy and talent issues? What are the appropriate communication strategies for sharing your plan? What legal issues need consideration related to the strategy, financial, and people aspects of succession? So, what is preventing you from starting this effort tomorrow? Small and family businesses are the bedrock of all businesses. More people are employed by small and family-owned businesses than by all multinational companies combined. Yet the research on small and family businesses is bleak: fewer than one-third of small business owners in the United States can afford to retire. Only 40% of small businesses have a workable disaster plan in case of the sudden death or disability of the owner, and only 42% of small businesses in the United States have a succession plan. Fewer than 11% of family-owned businesses make it to the third generation beyond the founder. Lack of succession planning is the second most common reason for small business failure. Many organizations often wonder where to start and what to do. Succession Planning for Small and Family Businesses: Navigating Successful Transitions presents a comprehensive approach to guiding such efforts. Small and family-owned businesses rarely employ first-rate, well-qualified talent in human resources. More typically, business owners must be jacks-of-all-trades and serve as their own accountants, lawyers, business consultants, marketing experts, and HR wizards. Unfortunately, that does not always work well when business owners embark on planning for retirement or business exits. To help business owners avert problems, this book advises on some of the management, tax and financial, legal, and psychological issues that should be considered when planning retirement or other exits from the business. This comprehensive approach is unique when compared to the books, articles, and other literature that currently exist on the market. This book takes on a bold and integrated approach. Relevant research combined with the rich experiences of the authors connects this thorough, evidence-based approach to action-based approaches for the reader. Cover Half Title Title Page Copyright Page Dedication Table of Contents Preface Acknowledgments About the Editors and Contributing Authors Advance Organizer Part I Deciding What to Do: Life and Career Planning for Small Business Owners and Family Leaders Chapter 1 Considering Your Choices 1.1 Decisions Start with You 1.2 What Is the Situation in Your Business? 1.3 Defining Terms 1.4 Differences and Similarities between Small Businesses and Family Businesses 1.5 Facts and Figures about Succession Planning in Small and Family Businesses 1.6 Life and Career Planning for Yourself 1.6.1 Step 1: Decide What You Want 1.6.2 Step 2: Formulate a Vision of the Future 1.6.3 Step 3: Set Your Targets 1.6.4 Step 4: Scan the External Environment 1.6.5 Step 5: Identify Your Strengths and Weaknesses 1.6.6 Step 6: Conduct a SWOT Analysis 1.6.7 Step 7: Consider the Range of Choices 1.6.8 Step 8: Select the Most Desirable Choice 1.6.9 Step 9: Create Action/Transition Plans 1.6.10 Step 10: Implement the Plans 1.6.11 Step 11: Evaluate Results against Targets 1.6.12 Step 12: Make Corrections to the Action Plans as Needed 1.7 Succession Planning after Life and Career Decisions 1.8 Chapter Summary Works Cited Part II Planning for Succession in Small and Family Business Chapter 2 Strategic Planning for Succession Sustainability 2.1 What Is a Strategic Succession Plan? 2.2 What a Strategic Succession Plan Is Not 2.3 Why Strategic Planning for Succession Sustainability Is Important for Small Businesses 2.4 Myopia and Wishful Thinking—Failing to Think Strategically 2.5 Organizing and Implementing a Strategic Succession Plan 2.5.1 What Is the Business Owner’s Goal? 2.5.2 Leadership and Operations Options 2.5.3 Business Owner Exit Options 2.5.4 Owner Exit Timeframe 2.6 How Long Will It Take? 2.7 How Frequently Should the Plan Be Updated? 2.8 Necessary Preparations 2.9 Ensuring Anticipated Results Are Achieved 2.10 Three Tools Vital for Implementation Success 2.11 Chapter Summary Works Cited Chapter 3 Recruiting a Successor from Inside, Outside, or Utilizing Other Options for the Organization 3.1 Introduction 3.2 Importance of Succession Planning 3.3 Selecting a Successor from Within or Outside the Business 3.4 Additional Options for Selecting a Successor 3.5 Succession Planning Best Practices and Tools 3.6 Effectively Recruiting and Transitioning a Successor 3.7 Nuances of a Family-Owned Business 3.8 Chapter Summary Works Cited Part III Special Issues in Small and Family Business Succession Planning Chapter 4 Family-Owned Business Dynamics and Politics 4.1 Defining Terms 4.2 Ethics and Values 4.3 Dynamics and Politics in Selection 4.4 Attempted Coup in Selection 4.5 Planning Ahead 4.6 Understanding Motivations 4.7 Organizational Culture 4.8 Peaceful Transition of Power 4.9 Non-Qualified Family Executives 4.10 A Lifetime Mindset 4.11 Governance 4.12 In-Law Effect 4.13 Generational and Mindset Differences 4.14 Chapter Summary Works Cited Chapter 5 What Psychological Challenges Affect Small and Family Business Succession? 5.1 Family Dynamics 5.2 Family Roles 5.3 Sequel Fallacy 5.4 Identity 5.5 Resource Tool 5.6 Chapter Summary Works Cited Chapter 6 Questions and Answers about Legal Issues in Small and Family Business Succession 6.1 Introduction 6.2 Key Terms 6.3 Common Questions and Answers about Legal Issues in Small and Family Business Succession 6.4 What Does My Company’s Legal Strategy Have to Do with Succession Planning? 6.5 How Do I Get Started? 6.6 The Role of Legal Partners in Succession Planning 6.7 Selecting a Legal Partner 6.8 Conflicts of Interest—A Common Succession Challenge 6.9 What Will a Legal Expert Partner Work with Me to Do? 6.10 Market Business Valuation 6.11 Subjective Business Valuation 6.12 Competing Motivations—A Common Succession Challenge 6.13 Developing an Effective Succession Strategy 6.14 Owner Centric Organizations—A Common Succession Challenge 6.15 Business Continuation 6.16 Business Structure 6.17 Business Ownership Model 6.18 Owner-Operator Model 6.19 Distributed Ownership Model 6.20 Public Ownership Model 6.21 Oversight—Ownership Rights and Responsibilities 6.22 Voting Rights 6.23 Governing Boards 6.24 Executive Management 6.25 Reaffirming the Importance of Each Role—A Common Succession Challenge 6.26 Economic Interests 6.27 Confronting Reality—A Common Succession Challenge 6.28 Transfer of Assets and Control 6.29 Passing Ownership Interest to Heirs—A Singular Event 6.30 Taking an Incremental Approach—A Common Succession Challenge 6.31 Passing Ownership Interest to Heirs—A Phased Approach 6.32 Transferring Assets 6.33 Change of Control 6.34 Timing the Exit Strategy—A Common Succession Challenge 6.35 Selling To External Buyers—Inner Circle—Management or Employees 6.36 Selling To External Parties—Independent Buyers 6.37 Preserving Company Culture—A Common Succession Challenge 6.38 Lacking Documentation—A Common Succession Challenge 6.39 How Will I Know When I Have a Sound Succession Plan? 6.40 Interplay between Personal Estate Planning and Business Succession—A Common Succession Dilemma 6.41 Chapter Summary Works Cited Chapter 7 Valuing the Small and Family Business for Succession Planning 7.1 Introduction 7.2 Defining Terms 7.3 Why Business Valuations Are Important in Succession Planning 7.4 The Impact of How the Transfer Is Structured on Business Valuation 7.5 Revenue Ruling 59-60 7.6 Why You Need to Value Your Small or Family Business 7.7 Sophistication of the Small or Family Business 7.8 Valuation Principles 7.9 Going Concern 7.10 Valuation Methods 7.11 Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) 7.12 Normalization Adjustments 7.13 Common Valuation Methods 7.14 Guideline Company Method 7.15 Discounted Cash Flows Method 7.16 Asset-Based Method 7.17 Discounts on Valuations 7.18 Chapter Summary Works Cited Chapter 8 Questions and Answers about Financial Planning Issues in Small and Family Business Succession 8.1 Why You Need an Exit Plan 8.2 Common Themes to Address 8.3 Financial Planning and Succession Planning 8.4 Options for Transitioning the Business 8.5 Chapter Summary Works Cited Chapter 9 Talent Management in Small and Family Businesses 9.1 Opening Vignette 9.2 Introduction 9.3 Defining the Term Talent Management 9.4 How Talent Management Relates to Succession Planning 9.5 Unique Talent Management Challenges and Mitigation Efforts of Small and Family Business Owners 9.5.1 Planning for Workers 9.5.2 Acquiring Workers 9.5.3 Developing Workers 9.5.4 Deploying Workers 9.5.5 Engaging Workers 9.5.6 Rewarding Workers 9.5.7 Promoting Workers 9.5.8 Retaining Talented Workers 9.5.9 Releasing Workers 9.6 Recent Challenges Small and Family Business Owners Are Experiencing 9.6.1 Offering Workers More Flexibility 9.6.2 Making Efforts to Ensure Workplace Health and Safety 9.6.3 Paying Attention to Psychological Issues 9.6.4 Trying to Create a Better World 9.6.5 Offering Pay That Keeps Pace with Inflation 9.6.6 Demonstrating Sensitivity to Diversity Issues 9.6.7 Ensuring Timely and Effective Communication about Workplace Issues 9.7 Chapter Summary Works Cited Chapter 10 Transitioning the Business and Executing the Succession Plan 10.1 Definitions 10.2 How to Plan the Business Transition 10.3 How to Select an External Successor 10.3.1 Step 1: Experiencing Presocialization 10.3.2 Step 2: Participating in the Recruiting and Selection Process 10.3.3 Step 3: Giving and Receiving Initial Impressions 10.3.4 Step 4: Doing a Deeper Dive by Entry Socialization and Onboarding 10.3.5 Step 5: Doing an Even Deeper Dive by Long-Term Socialization 10.3.6 Step 6: Participating in Make or Break Assignments and Experiences 10.4 How to Develop an Internal Successor 10.5 How to Transition When Making a Choice Other Than to Hire from Outside or to Promote from Inside 10.6 Planning the Exit of the Former Owner 10.6.1 Step 1: Reaching the Exit Decision: Sudden Departure/Phased Departure/Decision to Depart 10.6.2 Step 2: Giving Notice of Departure to Key People 10.6.3 Step 3: Giving Notice of Departure to Staff 10.6.4 Step 4: Giving Notice of Departure to Others (Suppliers, Customers, Dealers) 10.6.5 Step 5: Giving Evidence of Departure (Cleaning Out the Office/Having a Final Party) 10.6.6 Step 6: Phasing Out of Duties and Responsibilities 10.6.7 Step 7: Formally Handing Over Duties to Others 10.6.8 Step 8: Informing People about How to Reach You after You Leave 10.6.9 Step 9: Remaining Involved as You See Fit—and as Others Ask 10.7 Chapter Summary 10.8 Chapter Tools Works Cited Appendix I: Frequently Asked Questions (FAQs) Appendix II: Resources about Small and Family Business Succession Planning Index