Transitioning Your Company to the Next Generation of Ownership: If You Fail to Plan, You Plan to Fail

April 13, 2016

There’s a big problem facing Missouri manufacturing:  The loss of the knowledge and experience that makes entrepreneurial companies survive, grow and prosper.  It’s going to result in loss of jobs and affect Missouri’s economic growth, and it will destroy the legacy of too many hard working business owners who’ve earned the right to get more out of their hard work when it’s time to transition their company to new leadership or ownership.

About half of Missouri manufacturing companies are closely held or family owned, and statistics show almost 50% of them will transition to new ownership or management in the next five years.  Here’s the problem:  About 60% of those companies will fail to make a successful transition to new leadership or ownership.  That’s a sobering point to ponder.

As an owner of a closely held or family manufacturing company, you’ve worked hard to grow your businesses and achieve your goals.  You’re a graduate of the school of hard knocks, and you’ve learned hard lessons along the way, fighting through changes good and bad, learning what works through trial and error, struggling through down economies, thriving in good times, and through it all you somehow managed to make a profit and grow.  You have acquired vast amounts of knowledge and business wisdom along the way.

No one knows your business like you do.  That means when you’re gone, chances are huge that your business could be gone, too.  If your company isn’t prepared for transition when the time comes, and it fails, what would that mean for your heirs or successors, your loyal employees or your personal retirement?  Are your children among the 40% that will actually make it when they take over your company?  Will your people be able to carry on without you in the event you are disabled, injured or die suddenly?  If you intend to sell when the time comes for you to retire, will you have maximized your company’s value and attractiveness to buyers?  If you plan to earn transition income as your company migrates to new leadership and ownership, doesn’t it make sense for you to do everything you can to ensure your company will thrive when you’re not there to run the helm of day-to-day operations?  These are just some of the critical questions you need to ask yourself. 

Entrepreneurs like you work hard with the goal of one day reaping the rewards of success, and the best way to maximize the return on all your years of sweat equity is to plan now for your company’s successful transition to new leadership when you move on.  A huge part of that transitioning ownership is the successful sharing of your years of knowledge and experience with those who will follow you at your company, and it’s never too soon to plan for it.  Family Business Advisors will tell you it’s best to plan on at least five years for a successful transition, and ten years is even better.  Entrepreneurs who are great strategic planners know this, and they plan from early stages to be ready for transition on their own terms, or in the event of catastrophic change.  Remember that tomorrow comes quickly, and catastrophe strikes suddenly.

But maybe you take for granted just how much knowledge you’ve acquired over the years as you successfully grew your business.  You’ve learned the lessons and conquered the challenges of meeting a payroll, managing employees, overseeing operational processes and getting your products to market as cost-effectively as possible.  You understand profit.  You’ve nurtured and grown your company, sweated over it, cared for it and lost sleep over it.  You’ve survived the loss of key employees.  You’ve learned an awful lot through direct experience and it’s gotten you where you are today.

Entrepreneurs succeed by looking ahead and planning, taking advantage of coming trends, preparing for economic downturns and market changes, covering as many bases as possible to ensure the company’s strength and stability.  You plan for expansion and growth, and understand how long term projections and goals are what allow you to grow the most, keeping you on track to achieve your goals.  It simply makes sense to do the same thing when it comes to transitioning your business.  By careful planning and implementation, your company will be ready for the next generation when the time comes.

A Family Business Advisor can be a great help to closely held or family-owned companies.  These businesses have unique characteristics, such as family dynamics, key employees who have put in years of sweat equity preparing to benefit when the leadership change comes, and so on.  A Family Business Advisor specializes in understanding these issues and can help you with everything from dealing with sibling rivalries, to documenting your transition wishes, to guiding you on mentoring your successors so they can handle the challenges when they take over.

You use specialized expertise all the time in your business.  For example, your accountant helps you manage your financials and your taxes, and you call your attorney to handle your legal issues.  Maybe you’ve had manufacturing experts help your company with quality management, or health and safety issues, human resources and so on.  You’ve sought out expertise like this because they have specialized knowledge you need, and you bring them in for help when you need it.  The same concept applies to Family Business Advisors; they have expertise you need to successfully plan for the eventual transition of your company to new ownership.  A Family Business Advisor helps entrepreneurs look at the big picture, not just silos of individual needs within a company, and assesses how each area’s special needs impact and interact with your transition goal.  This strategic view promotes a more smooth and successful transition.

It’s true, no one knows your business like you do, and no one ever will, unless you develop and implement an actual plan to share your knowledge with successors to prepare them to take over in the future.  When you consider the 60% failure statistic cited above, the old adage applies perfectly to business succession planning:  If you fail to plan, you plan to fail.