Advice for Hitting the Moving Target of Succession Planning, Part 2

Steps companies can take to make the transition process smoother and easier.


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Last month, Stacey Bales and Sara Bales Mortensen shared their experiences with business succession and how they handled their sudden inheritance of their father Steve Bales’ company, Bales Mold Service, with no succession plan in place. This month we talk to two experts who each have many years of experience with business succession planning to get some insight into steps companies can take to make the transition process smoother and easier.

Frank Marcin, COU, MSFS, of Marcin Financial Services in Hoffman Estates, IL, explains, “If trust is there, you can solve anything. But if there is distrust or a fear factor, it’s very difficult to make progress and solve anything, leaving a mess to deal with should the unexpected happen such as the death of an owner.”

Attorney Alan Kovitz of the Law Offices of Kovitz, Shifrin, Nesbit in Buffalo Grove and Chicago, IL, concurs, saying, “Sometimes it’s a study in psychology. If no one gets along, no plan on paper or otherwise is going to make any difference.”

Both gentlemen have extensive experience working with family-owned companies to formulate logical, living succession plans. In addition to agreeing that things go much more smoothly when all concerned parties get along (not always a given), they also agree that having at least a short-term business plan in place is a smart way to begin succession planning.

“There’s one cohesive story when everyone is alive and the business is in play,” states Marcin. “It’s important that the principals, the family, partners, etc. share what the vision or dream is for the company. Sharing that also brings in what the contingencies are for the company. The company can go broke and what impact would that have on the family? Death, permanent disability or retirement of one of the owners—these are the main contingencies that must be considered.”

“You must take into account two important aspects: the people involved and then the succession of the business and whether it will be family or employees that succeed the owner. These are two very different things,” Kovitz adds. “You should then have a business plan for 3-5 years out. Farther than that and you’ll never come up with the answers. But you do need to start with the answers to questions like the following: Do we expand? Do we invest in new locations or services? Do we promote from within the company? How do we educate ourselves in handling people problems and the financial aspect of the business?”

Grooming a Successor
There are a number of things to consider when deciding who should succeed the current owner or principal of a company when that person is gone.

“With succession you have different aspects in the personal, financial and business planning ends of things,” says Kovitz. “The business plan is the easiest thing. The rest have such an abundant number of variables that it makes the succession plan a kind of moving target.”

He adds that, too often, small businesses don’t last more than two or maybe three generations. This is due largely to the fact that there is simply no one left to go into the business, or perhaps the family members or employees who tried didn’t have what it takes to keep it going.

“A missing ingredient is often the desire and ability to run the company—often those qualities go away with the one who died,” says Kovitz. “Buy-sell agreements must take into consideration death, retirement and disability. Then we ask if any of the kids are going to come into, or stay in, the business. Shares in the company must be considered. If no kids are in the business, or if they are teens and the owner/parent dies, then you go to the death benefit and what that offers, and you consider putting a succession plan for employees in place.”

Marcin explains, “You cannot underestimate the power of an insurance product. Sometimes that money helps tide things over while issues are being figured out, or it’s used to buy out a partner, or to build the business—there are many ways the insurance can play a role. The money buys you the time to have more options for what to do in times of crisis.”

Both Marcin and Kovitz stress that if it is desired that the company should survive and thrive into the future, it is imperative that a successor or successors are chosen and that they are groomed to lead the company before the inevitable happens.

If the owner has more than one child, but only some are directly involved in the business, Kovitz and Marcin advise the owner to consider estate planning and the use of life insurance as ways to ensure that assets are fairly distributed to the non-employee children even though the company itself remains active and in the hands of the child or children involved in it. Most importantly, put it all in writing. Never assume that the level of importance you place on your legacy of the ongoing future of your business is shared by your successors.

“If no family member is interested in running the business, but you want to keep it going, then you look to the people within the company first to see if there’s someone (a foreman, a long-time key employee) who has the personal leadership qualities to run the company,” explains Marcin. “Begin grooming them for this. This is also where a buy-sell agreement comes into play.”

“When working on a plan you have to work with your people to make sure that the succession of these people is part of the process—they have to be promoted into the decision making, banking, expansion and employee management realm to help prepare them for succession,” adds Kovitz.

As a last resort, there are consulting firms out there today that can help with valuation of companies and creating a market for selling a business if a successor cannot be identified. These experts can give the family a broader perspective of their options that are objective and not emotional.

Best Laid Plans
Every company is different and there are plenty of outside factors—factors one cannot control— that can come into play and add to the moving target personality of succession planning.

“Even with a good succession plan, the economy, personalities and other circumstances can prevent its execution—making it necessary to pay close attention to the moving pieces and take things one year at a time,” Kovitz says. “The current economic instability throughout the last 10 years has knocked even the best laid plans for a loop. People used to plan and buy stock in AT&T, Sears, and other high-end corporations, but today—because things move so darn fast—what used to be something one could depend on for future security may no longer exist or remain the same.”

Marcin advises, “Don’t put all your eggs in one basket. Try to plan things in such a way that you protect yourself from yourself—from your own possible ignorance, vulnerability, gullibility—and diversify. Plan to acquire assets outside the company as well as inside so that not everything will be affected if your company goes under. Get help in areas you don’t know about—form those teams and use them; listen to them. You know what you are good at—surround yourself with others who are experts in other ways to round out your resources and help you make better decisions.”

Cynthia Kustush is a Journalist and Public Relations professional with more than 17 years experience in the plastics and production tooling industries. The daughter of a mold shop owner, Cyndi has worked at Progressive Components since 2003, has provided PR services for Bales Mold Service since 1995, and is actively involved with the American Mold Builders Association including being recently appointed to the board of the Chicago Chapter of the AMBA. (cyndi.kustush@procomps.com; (630) 369-9120).

For More Information:

Alan Kovitz, Law Offices of Kovitz, Shifrin, Nesbit, A Professional Corporation
(847) 537-0500 / akovitz@ksnlaw.com

Frank Marcin, Marcin Financial Services
(847) 212-2752 / famarcin@aol.com