Byline Succession Agreement Made Easy

Byline succession agreement

[Music] hi this is Wayne rivers at the Family Business Institute thanks for spending your time with us as always let us have the benefit of your comments below so I want to talk about succession planning as we do probably every other blog it's just the big Bugaboo for family businesses over time there just never seems to be yet an easy way to do it so I wanted today I want to give you the top nine reasons that we think that family business has failed to do succession planning everybody puts it on their to-do list everybody says this is going to be the Year by gosh 2018 is going to be the year we're gonna get it done and we're gonna put together a coherent strategic succession plan we're gonna make it work and then guess what you get to December 31st and it didn't happen that's just that's just the nature of family business planning and I'm gonna give you the nine reasons why that so first it's never agent right there's a distinction between important things and urgent things if you've seen Dwight Eisenhower had the had the matrix that he used for deciding how to focus his time where things truly important and urgent or do they just appear to be urgent and weren't truly important so succession planning is ultimately amazingly important but it's rarely urgent because unless there's a serious illness then you can always do it next month or even next year you can always get around to it and the day to day stuff piles up and it takes time away from doing this ultimately very important task in favor of your more urgent tasks so it's easy to put off the second reason is the let me be blunt the professional community the bankers lawyers CPAs financial planners etc they focus on the drop-dead aspect because that's their training that's what they do that's where they're good at that's where their contracts are about they focus on the drop-dead aspect of succession planning and they give you a false sense of security you need a drop-dead plan don't get me wrong absolutely you need a drop-dead plan because you never know if like me is going to strike and you don't to leave your business or your family an alert but the false sense of security that it creates is a problem because you go to the lawyer in the CPA you do a you know the estate plan and you take care of the taxes and my stuff is going to go here and in my body I want my body donated to medical science all that other stuff and you go golly glad that's over I got all these documents now and I just spent $8,000 and man more power to me I've done a good job of succession planning well no you haven't you you've only addressed what happens if you drop dead and let's hope you don't what happens if you live that part of the equation goes unanswered 90% of the time the third reason is that you get employee or family member pushback and this happens all the time so let's say a family business senior generation family business leader has three kids and they're all grown and they're all married and mom and dad and the three kids and the senior managers in the business they all want to get together and do succession planning and they want to talk about a strategy for moving the business forward over the next ten years and somebody on the group says you know maybe an in-law even says no I don't want to do that it stirs up too many unwelcome memories and I'm just not good it is amazing how we let other people and our families have veto power over decisions big and small so you get pushback from an employee well we don't have time for that right now succession planning sounds great I know we need to do it but man we've got ten projects we're working on that are much bigger than that and we just need to focus our time on that let's put it off six months well okay he makes a good point let's do it you get pushback and and frankly the senior generation leaders or the people leading the initiative lose heart and and they walk away from it the fourth reason is psychological it's always always always always always always easier to not change if you think about it right so yeah we need to do succession planning and we need to hire some people and fire some people and we need to invest more money in this area and we need to have better IT and we need to do all this strategy and succession planning you know what it's always easier and safer psychologically to not do it because because doing succession planning in strategic planning is going to require that you undertake a process of change and change is very threatening to us psychologically so saying no pushing it back walking away from it can you go who dodged that bullet so we can we can put that off for another six months and we don't have to worry about it always easier always safer and there again not to pick on the professional community but you know typically CFOs controllers CPAs their first answer is always no because their risk managers they're there to manage risk on your behalf if you if you let them get between you and your necessary entrepreneurial pursuits with a no then I'm sorry you're gonna find yourself losing ground to your competition over time but as risk managers it's wise for them to say no because they see the needs of the business and they tend to prioritize urgent things over long term important things the fifth reason is how to okay those two simple words how to succession plan is complicated there's lots of moving parts there's lots of people that need to be involved in the process somebody might not be happy with the process which is another family or psychological risk the how-to part is really nebulous for most family businesses they know their business they know their processes they know their people they know their customers they know their vendors you know they make decisions every day with less than perfect information but this thing only comes along once a generation the needs of the business that's daily I mean I'm my daily muscles are pretty well built up for making those decisions my succession plan that only comes up once every 20 or 25 years so I don't have well-developed muscles for those kinds of decisions and and so you need the how-to and if you in the absence of the how-to you know there's nowhere to go I've heard this a number of times over the years and always puzzles me people say you know I know we need to do succession planning we probably should get the family business interested to help with it but I don't know really what my goals are and until I know my goals then I really can't get professional help that is poppycock that is so wrong you know part of part of hiring a professional whether it's a whether it's an attorney or CPA or us as a consultant is to help you focus your mind on the realistic alternatives what's the what's the realistic menu of alternatives that you can pick from here okay you don't know what your goals are well can't a good professional shouldn't a good professional help you define what those realistic outcomes might be that just that thing has always boggled my mind the six reason people don't do succession planning is one of my favorites to talk about there is a distinct lack of courage among next generation successors where their family or non family it's almost like they Revere the bosses or the senior generation in the company so much that they don't want to rock rock the boat really even even sometimes the senior generation says you know I would like to see more fire happens rather frequently really I'd like to see more fire for my successors they just don't seem to have the same energy and commitment that I did when I was coming along the lack of courage how much courage does it take to go to the boss and say you know we really need to think about what we're gonna look like ten years from now because you're not always going to be here and you want to take more time off and travel with your spouse and all this other stuff how much courage does that really take but it is shocking to me I can only know him maybe four or five examples in my 29 years where successors have gone to the senior generation and said look we're going to do this succession planning I want to know my future or I'm out and they actually had the courage to quit and let me tell you something those that little handful of people are the most successful clients the Family Business Institute have ever had they took their in their all family businesses the ones I can think of they took their dad's companies all of them were their sons taking over from father's and they took a little kind of an unknown pipsqueak of a company and turned it into something magnificent those people had courage and I wish that so many more of our 35 year olds and forty-five year old next gen successors family or non family it doesn't matter had the courage to really push to say we need this as an organization you're going to lose your best people if we don't have a pathway for them to see themselves in the future of this business it really is a huge frustration I guess you couldn't tell them it's a huge restoration for me alright the seventh reason the see generation is worried about fairness so we did a poll years ago it's a long time ago now and 80% of our customers had children in the business with them 80% also had children who weren't in the business I mean there's overlap in that number obviously so if you think about it the majority of family businesses today have both employee family members and non employee family members and the senior generation always worries about what got the business's worth 5 million bucks but I don't have that much other stuff so if I give the business to my employee children then my non employee children aren't going to be treated fairly at inheritance time what do I do they get so wrapped around the axle about fairness come on man that's not that hard of a problem go out and buy some life insurance or figure out a way to give them all the business equally and just put a there's so many ways to overcome that but they they let that be the big you know the big 600-pound gorilla that just just blocks any progress so I don't know how to be fair to my children hey man get some advice I think that complicated you you think you're the only person that's ever been in this situation before the eighth reason is that people views family business succession planning as an event not a process so here it is q1 2018 and and and dad says okay look I'm tired I'm 70 years old I'm gonna be out December 31st I'm out get ready well it's not like you don't have a busy job as a successor hey it's not like everybody's not occupied what do I even need to know to to be ready to run the company so there's there's little mentoring there's a little preparation there's a little time invested and and really it's like an event I'm gonna be on on J on December 31st I'm gonna be out and you're gonna be the new president and and Sallie congratulations get to it and Sally doesn't know where to even begin and mom and dad aren't much help because there's just not much they're doers they're not teachers they're not mentors and then the final reason it costs too much I don't want to go to my lawyer and cpa and spend thousands and i don't want to hire a consultant it just costs a fortune we'll just figure it out on right well it's not cheap I mean lawyer fees and CPA fees and professional consulting fees they're not cheap but at the same time if you have a business worth preserving you have to look at it not as an expenses it's an investment with a predictable return so let's say just hey man let's have fun with this as a consulting firm you spend a hundred thousand dollars you won't but let's just say you spend a hundred thousand dollars but if you can preserve the value of a business worth a million or five million or a hundred million they really is that investment not a drop in the bucket so those are the top nine reasons that family businesses fail to do succession planning if you're stuck with one or more of these challenges by all means pick up the phone and call and man will talk you through it try to get your point in the right direction and as always we'd love to have your comments below this is Wayne rivers at the Family Business Institute thank you [Music] you