The HBO series Succession has catapulted a very important aspect of corporate planning into the spotlight in recent years – and business consultants everywhere are rejoicing.
You may be wondering what the big deal is. Why would succession planning be so important?
It takes a tremendous amount of time, energy, sacrifice, and hard work for a business owner to be successful. Oftentimes, building a business is an entrepreneur’s proudest achievement. That’s why it can be difficult to think about eventually having to exit the business. Conceptually, they can envision handing the reins over to someone else and retiring, but actually doing it becomes an emotional hurdle.
In reality, succession planning frequently gets delayed until an owner is faced with a catastrophic event such as illness, disability, or death. But at that point, it’s too late to plan objectively.
Over the next decade or so, it is predicted that approximately 12 million privately-owned businesses in the U.S. will be sold. Here’s the scary part though – approximately 70% of privately-owned businesses with owners in the 60- to-64-year age bracket, do not even have a succession plan in place to facilitate such a transition! In fact, only about one-third (35%) of all organizations have a formal succession planning process (https://www.td.org/insights/succession-planning-is-your-organization-prepared).
According to the U.S. Small Business Administration, only 30% of privately-owned businesses survive the transition from first to second generation. By the fourth generation, that number falls to just 3%. This statistic is troubling for both entrepreneurs and the economic health of our nation.
The events of the past year and a half have made it even more clear that all businesses should have both an interim continuity plan and a long-term succession plan, because circumstances can change rapidly – and as we’ve seen, in ways that are beyond anyone’s control.
Operating a privately-owned firm magnifies many issues of succession. The operational and strategic considerations, in tandem with maintaining interpersonal relationships with stakeholders and key team members, can prove to be exhausting upon the event of owner departure. Even if your firm boasts sophisticated and knowledgeable professionals, it is still possible to get caught in a web of complication and unforeseen consequences.
Most owners do eventually want to retire and sell their business, but few have actually considered the time and preparation that are needed to make that vision a reality (it usually takes 7 to 10 years to successfully implement a plan). While some entrepreneurs are adamant about never retiring (psst…. you don’t have to retire when you sell a business!), a succession plan also serves as an effective solution to the loss of intrinsic value. You should only ignore the task of preparing adequate successors if you want to see the company dissolve after your departure.
Of course, none of us like to think about facing our own mortality, but the reality is that every business must change hands at some point. Estate and succession planning are designed for the living; after the death of a business owner, it becomes much more difficult to ensure proper succession planning. The fact remains – having a succession plan in place is a necessity, not a luxury.