Succession Planning Process Issues

Most business owners understand that one day, sooner or later, the time will come when they need to pass the torch onto a successor. Moving from one’s work life to retirement life is a big step. This is especially for business owners give their sheer investing of time, not to mention the emotional attachment. This means the process can actually be quite difficult depending on the mindset, disposition and circumstances of the existing owners. Since most owners go through the succession planning process once in their life, it’s essential to understand common issues made in the process. To help clients, prospects, and others understand the common issues faced in succession planning, JLK Rosenberger has provided a comprehensive summary of the issues below.

Common Planning Challenges

• Planning Timeline – It’s common for many business owners to delay and delay before starting the planning process. In one sense this is a natural emotional response since these individuals have often invested a significant part of their life into it. However, the longer an owner waits, the more difficult it can be to develop an effective plan. Identifying goals, successor candidates, proper training and transition of responsibilities can take years of planning. For this reason, it’s critical to start planning as early as reasonably possible. This will ensure that there is adequate time needed to accommodate each step of the process.
• Successor Identification Process – Often times a business owner will some idea of which professional(s) in the company has what it takes to replace them. Although intuition can be a useful tool, it’s important to have established criteria with a clear explanation of how a successor will be identified. If the process is based on subjective rather than objective criteria those individuals not selected for the job will become indifferent (at best) and shortly leave the company. While the process is about finding the right match for the position, don’t forget to be kind and objective with those who wanted the role but were not selected. Often these are existing employees who are important to the company, so it’s best to have an objective set of criteria for this process.
• Transferring Responsibility – Once a successor is identified it’s essential to have a plan that gradually transfers responsibility and decision making power to the new person. However, in our experience, sometimes owners only give nominal responsibility while not giving up actual control. While this is understandable on some level, it’s also damaging to the succession process. It’s necessary to give the successor the freedom and decision making power so they can become comfortable in the role. It is also necessary for employees so they see the actual transition occurring. Not authentically transferring responsibility sends a confusing message to employees and the successor.
• Secretive Planning – Often times a business owner will have a plan created but make no effort to communicate it. This is a critical mistake that can have serious ramifications. Openly discussing the succession plan with key family and staff members provides much needed time for the changes to “sink in”. Waiting too long to share the plan with others reduce the time available to optimize and enhance plan effectiveness
• Retirement Fear – In some cases, although the business owner realizes they need to transition the business, they have a deep seated fear of retirement. Since the business has consumed their attention and time for many years, it’s easy to understand why they may not want to leave. For this reason, it’s essential to have a post-transition plan. Identifying what to do during retirement (including travel, more family time, and investment in charitable endeavors) can build excitement and reduce owner attachment to the company and resistance to the process. 

Contact Us

Succession planning is a complex process that involves multiple psychological, economic, and financial and tax planning concerns. For this reason, it’s necessary to work with a firm that has experience guiding owners through the complex process. If you are interested in creating or need assistance implementing a succession plan, JLK Rosenberger wants to help! For additional information please call us at 818-334-8623, or click here to contact us. We look forward to speaking with you soon!