James S. Cassel: The time to begin succession planning is now

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By James S. Cassel

August 17, 2014


James S. Cassel

Death and taxes are not the only certainties in life: Like it or not, at some point, you will have to leave your business. Hopefully, you will do so when and how you want, and with the benefit of an appropriate succession plan to help ensure the best-possible outcome.

Although most people don’t dispute the benefits of succession plans, they don’t pay enough attention to this important aspect of business ownership. Most of us would love to think that we will leave our businesses when we are good and ready, but we must be prepared for unforeseen circumstances that may lead to our sudden departures. The trouble with unexpected events is that they occur unexpectedly. So, when is the right time to begin planning? Simply put: “Now.” In my experience, I have seen many businesses suffer serious consequences, including everything from divisive family feuds among potential heirs to dissolution of the businesses, simply because the owners had failed to develop the necessary succession plans with appropriate documentation.

Here are some key considerations and tips to help ensure you are on the right track. First, it’s important to think about how you would like to leave your business. Will you step away all at once, abruptly, or will you do so gradually, transitioning slowly? Part of your transition plan can include extracting yourself from the day-to-day logistics and moving to a more advisory or consulting role.

Among the many considerations when planning a succession, exit or transition in a business, you will have to ask yourself if and how your family will play a role going forward. First, are family members involved or do any want to be involved? Do they have the skills, experience, wherewithal and drive to be responsible stewards of the company’s interests and the family’s assets? Perhaps a family member who initially wasn’t interested in playing a role in the company becomes interested over time.

Consider the age of your successors. If you’re approaching retirement, anointing a sibling or near relative of comparable age may be counterintuitive, depending on your age. In that case, ask yourself how you will integrate the next generation into the business. In some cases, this can include bringing in a daughter-in-law or son-in-law. Another consideration to keep in mind is that sometimes the best successors are not family members but rather long-time employees. How all of this differs from bringing in blood relatives is ultimately up to you, but in any case it’s always wise to speak with qualified consultants to afford yourself certain protections and, above all, peace of mind.

Failure to establish a clear succession plan can cause complications later as familial involvement in the business expands. For example, I worked with two families that owned a business together. The grandfathers had started the business, and when their sons, the second generation, inherited the business, the company continued to grow and prosper and the successors got along great. However, the third generation did not get along professionally or personally. The combination of unsolvable issues cost them the entire business. Everything that everyone had worked so hard to build was eventually destroyed, and they lost it all.

Could this have been avoided? Absolutely, if the second generation had established a clear plan for familial succession with appropriate agreements and provisions in the event of problems.

Remember, though, that family members are not the only stakeholders you’ll have to consider when you’re planning your exit. If you went into business with a non-family partner, ask yourself how you will navigate the channels of exiting if you want to sell and your partner doesn’t. This is particularly problematic when business partners are of disparate ages.

The matter can become even more complicated with multiple partners. For instance, two of the three partners of a successful firm I know were ready to retire last year, but the third wanted to stay and continue building the business. It took months of planning and preparation and going back and forth, and ultimately the best they were able to manage was to allow one of the partners to retire while the other had to wait longer before exiting. The business simply couldn’t absorb the transition of two of three stakeholders at the same time from both an operational and financial sense.

Finally, we are always subject to the unexpected. Passing away without planning the succession of your business can be logistically disastrous for your company and financially stressful for your family and legal heirs. No matter your industry, number of stakeholders or types of stakeholders, your company’s longevity is best served by spending time planning for succession. This plan should be drafted with the guidance and input of experienced lawyers, accountants, insurance professionals as well as other appropriate consultants and should provide for the possibility of disability, in the event that you may not be able to participate in traditional operations. Sometimes selling the business is a better option.

Although planning for the inevitable is not always pleasant, the consequences of unforeseen events may be mitigated by thoughtful preparation. Similarly, the discomforts of retiring from a company you have run for years can be ameliorated by the knowledge that you are taking the right steps to protect your legacy.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. He can be reached at jcassel@casselsalpeter.com and www.casselsalpeter.com.

Med-Tek, July 2014