Succession Planning in a Hurry
By Nina Kaufman, Esq.As seen in …
Kimberly Martinez faced a difficult decision. For lifestyle reasons, she had already chosen to live in Florida, away from the Cleveland, Ohio headquarters of her company, Bonitas International. Now she had step back as not one, but two, parents concurrently fought their battles with cancer. How will the company function if she’s totally ineffective?
Valerie Shondel was a full-time musician joining her father’s large-format printing business during an internal reorganization. Within about a year, Valerie’s father died suddenly. He left SelectoFlash to her mother, who had no experience running the business. Valerie and her sisters were due to inherit from her. But local banks were nervous at the prospect of multiple owners. How could Valerie placate the banks and keep peace with her family members?
Christina “Kia” Ricci needed a bond for a project. The Florida-licensed building contractor and founder of iCheckContractors.com, was hit with the demand for a continuity plan to obtain the bond. The bonding company wanted to know who could complete the project if anything happened to her. On such short notice, what were her options?
Important, but not urgent … until it’s urgent
Succession planning is rarely top of mind for small business owners. And even when it is, it can take months (or years) to work out to full satisfaction. Sometimes– as Kimberly, Valerie, and Kia learned the hard way–circumstances like illness, death, or unplanned business exigencies, force you to deal with it pronto!
Women-owned businesses encounter certain challenges in succession planning. First, they tend to be service-based, which are harder to value as enterprises because much relies on creative processes, says Kathy Boyle, president and founder of Chapin Hill Advisors, a family office high net worth consulting practice. Second, many women-owned businesses have a family feel. Great if you’re an employee, but frustratingly vague if you’re a new leader trying to delineate responsibilities. Especially if your systems and processes are not written down. Finally, women business owners tend to fear that “employees will quit if they leave,” Boyle continues. So they tend to avoid that conversation.
It’s ironic, chuckles Phil Clements, managing director and CEO of Cathedral Consulting Group, which focuses on small to midsize private companies. We know at some point we will get bored with the company, retire, or die. Yet “many owners plan to live forever,” he says.
Succession planning in a nutshell
Desperation gallops in on all hooves when you look around your company to ask “who’s my backup?” … and you draw a complete blank. Or see only dismal options. Inept relatives, procrastination, and family squabbles have brought down many a multi-million dollar company.
So how can you start smart in your succession planning?
Clements outlines four simple steps:
- Visualize. What does your business look like if you are no longer part of it?
- Mind the gap(s). If you’re out of the picture, who’s in it? Who picks up the slack? Where are the gaps on your team?
- Find and decide. Will new leadership will come from inside your company or outside? (Hint: start with inside). Does anyone have the talent and capacity to step up? If not, can your company handle the possible culture shock of (and resentment toward) an outsider? And if the answer is no, why not just sell to a third-party?
- Groom your candidates … and the company. Set up a board. Encourage dialogue between current and future leadership so that all feel confident about the company’s future direction.
The steps may be simple, but not always easy. It helps to have a good team of advisors who can “take you up in the helicopter for the 30,000 foot view,” recommends Boyle. They need to expose you to holistic view of both the business and personal facets to succession planning, she adds.
A range of options
Kimberly hired a temporary COO with a massive background in senior-level retail, originally on a consulting basis. The COO added exceptional value by repricing a product line and improving profit margins. This freed up sufficient cash resources to be able to hire the COO on a full-time basis.
Valerie bought the business from her mother. The banks rejoiced because they no longer faced the prospect of fractured ownership. It provided her mother with continued regular income to maintain her standard of living. It also staved off future fights with her siblings.
Kia found a local colleague she had worked with previously. She screened carefully to ensure that he had the financial and workflow capacity to take over in the event of an emergency. The experience encouraged her to prepare for disasters and other business interruptions.
How will you put your company on a solid footing to function without you?
Have questions about working with Kaufman Business Law? This is the video to watch.
