What You Need to Know About Succession Planning
Business owners and CEOs are often both enamored and conflicted with the issue of succession planning. Few really know what it is, when to begin the process and the keys to effective succession planning. Whisman Giordano & Associates—a CPA and business-consulting firm—shares the key factors that business owners and CEOs need to consider when developing and implementing a succession plan.
What is succession planning?
A working definition of succession planning might be: “The strategy for passing the leadership (and possibly the ownership) within a company to someone else in such a way that the company continues to operate after the leader (owner) is no longer in control.” It is a means of ensuring that the business continues to run smoothly after the entity’s most important people move on. This process is often overlooked or is begun too late. If it’s a family business, there are a host of other issues to address that involve the business, the family and the interaction of the various members involved. In many cases the succession plan is to sell the business. Such a process is completely different from an internal succession plan and involves considerations of the value of the business, the identification of a qualified buyer, the terms of the deal, due diligence and communication with employees, customers, vendors and other stakeholders.
When should succession planning commence?
When to start the process often depends on circumstances, but many consultants would suggest that it is never too early to implement a plan. At a recent family business seminar, Philip A. Clemens, the recently retired CEO of Hatfield Quality Meats, indicated that he instituted a leadership development process some 15 years before transitioning out of the leadership role. The initial group began with over 10 executives and over from which a successor CEO was eventually selected. There are, however, other plans that simply do not work for one reason or another. Take for instance the planned transition of a Philadelphia fuel oil distributor. The business—controlled by a family patriarch who had turned 65-years-old—was thought to be transitioned to his only son. Unfortunately, the son simply didn’t have the maturity or ability to lead the organization. After several years, the patriarch had to step back in and sell the business. This is an incident where a realistic assessment of a family members’ ability to lead wasn’t made. A common mistake many CEOs make is promoting someone based on the performance in their current role. Many times top performers simply don’t make for the best leaders. This poses a separate succession issue, which is identifying who has the essential leadership qualities.
What are the keys to effective succession planning?
Effective succession planning involves many other issues, including continued employment, valuation of ownership interest, structure of sale and personal matters including retirement and financial needs and estate and gift tax planning.
Succession planning is an important proactive step that large and family-owned businesses need to make a priority. When it is done right, it can result in the continued success of a business as well as the maintenance of family relationships.
For over four decades, the team at Whisman Giordano & Associates LLC has focused on building extraordinary relationships by working diligently and spending time getting to know our clients. Our focus is on providing peerless accounting, auditing, tax planning, compliance and business advisory services. We’d love to learn more about your tax situation and give you insight into what to do next.
Whisman Giordano & Associates LLC
Certified Public Accountants
111 Continental Drive, Suite 210
Newark, DE 19713