Many of us can relate to trying a new diet or exercise program at some point in our lives. What was the key component to success or failure in the program? For me, the answer is easy—my success depended on a few things:

  • Did I fully “buy in” to the program?
  • Did I completely let go of previous habits?
  • Did I set realistic goals and establish trackable keys to success?
  • Did I faithfully track my progress towards those goals?

The succession planning process is no different. In this article I am going to focus on the challenges of getting a plan off the ground. Additionally, I will explore ways to overcome obstacles early in the process to keep our plan on track.

Just like for a diet and exercise program to be successful, the owner(s) of the company must “buy in” wholeheartedly to the succession planning process. What does “buy in” mean? It means accepting the importance of a succession plan and committing to pursuing it. One of the key obstacles that can crush a succession plan before it ever gets started is the owners unwillingness to create a plan and act on it. To do so, they must rely on outside experts, such as CPAs, attorneys, financial advisors, and business valuators to make recommendations and provide options based on the goals of the owner(s).

Relinquishing control is another obstacle for some owners who have spent their lives building their business. For example, an owner once asked me, “Why would I spend any time at all developing an exit plan for my company when I have spent my whole life developing an entry plan. It just doesn’t make any sense”.  Many owners see a succession plan as another unnecessary cost because they fail to recognize the real importance of having one. The process simply cannot move forward to goal setting until they understand and agree with the benefits of having a succession plan.

Once the owner(s) has accepted the importance of a succession plan and has committed to pursuing one, the real work begins. Just like early in a diet program, where anxiety is building over not being able to eat choice foods (in my case, a hot fudge sundae), succession planning requires the owner(s) to consider some uncomfortable realities and how they determine what is best financially for the business and them personally into the future.

These determinations include:
  • What income do I want or need in retirement?
  • What are the income needs for my extended family that I want or need to account for?
  • What is the longevity of the business? Does the owner(s) plan to transition the business prior to retirement or for retirement purposes.

One item often overlooked in the goal setting stage is planning for the unexpected. I am working hard on my diet and exercise program, but I have a work dinner at Fong’s Pizza in downtown Des Moines. How do I ensure I’m maintaining my goals? Well, I looked at the menu prior to arrival so I knew what I could order to stay on track. Planning for the unexpected from a succession planning perspective means considering what will happen in case of the owner(s) or key person’s death, disability or another event which would impact the continuity of business operations and/or potentially trigger a transfer of ownership. Hopefully, now it is becoming clear that goal setting for a succession plan does not just mean considering succession planning as a retirement plan, but also vital to any stage of the business’s life cycle.

Stay tuned for next quarter’s succession planning topic “Who Will Takeover – Transfers of Operations, Management and Control” which will cover transitioning the business to family members, key employees or outsiders, the methods to accomplish it, and what benefits and challenges are experienced when doing so.

Succession planning is not an overnight process, it is a structured plan for the transfer of ownership, control, and management of the business. The best chance of success requires investing considerable time (even years!) to carry out the order of the plan. Just as it took years to build a business, planning and transitioning it is just as tedious. This is where our professionals at TDT CPAs and Advisors can help as a full-service CPA Firm with Tax, Valuation, and Estate and Succession planning consultants ready to serve you. Contact us at one of our offices in Iowa or Illinois to discuss your needs.