Ross Henry, a client advisor at Laird Norton Wealth Management, recently published an excellent article entitled “Succession Planning is a Process, Not a Project.”*
While noting how critical succession planning is to a family and its business, and how easy it is to put the process off, Ross identified the three main components of succession planning:
- Strategic Business Plan. Every business needs to decide how it will grow and where it will concentrate its resources. For example, will profits be reinvested or paid out as dividends? Most businesses have this kind of plan, in one form or another.
- Governance. What structures are in place that provide guidance around leadership and ownership transitions? You can’t ignore the fact that the leadership and ownership of a business will change. Change is inevitable. You can and must plan for these events and clearly communicate that plan to family members and employees. Many businesses lack clear, well-communicated plans in this area, leaving family members and employees to speculate on the future direction of the business.
- Personal Financial Planning. While this element may seem out of place, it is often the linchpin to successful succession planning. If an owner is entirely dependent on the business for income, this dependence can stymie all succession planning efforts. Owners need to evaluate early and often their personal financial situation and find ways to diversify – the conflict between an owner’s need for retirement income and the business’ need for operating and expansion capital can be devastating, jeopardizing family relations and the business itself.
Much is to be gained by planning for the future and communicating that plan. It is never too soon to start the process of succession planning.
Bill Weigand is a trusted advisor to many multi-generational, family-owned businesses. He provides strategic counsel to businesses, particularly in the food, agribusiness, manufacturing, and distribution industries. Contact Bill at 206.757.8164 or BillWeigand@dwt.com.
*Please note that the Puget Sound Business Journal is subscriber-only content.