Ask anyone who has worked with, or for, a privately held family business for any extended period. They can point to a cautionary tale of a company left scrambling after the unexpected loss of a founder, entrepreneur, or key person, critical to the business due to their untimely demise, disability, or the unplanned departure of a key executive pursuing another more compelling opportunity.
In most circumstances, the business is left “scrambling” because such a loss only happens in the absence of appropriate planning. Why would you wait until a crisis strikes to fix a known vulnerability?
Less than a third of family-owned businesses survive the second generation. Many of these failures result from a lack of Leadership succession and or ownership business transition planning. A sad outcome, especially when you consider that succession planning and transitioning business ownership is not a novel concept.
Many key employees within an organization need a plan to leave, not just the CEO. These include each key executive and members of the C-suite.
A succession plan includes starting the conversation early with your shareholders, partners, board members, head of human resources, key executives, and other advisors; identifying successors and the appropriate strategy to fund your succession plans.
Key-person insurance is an effective way to protect your business from the financial risk of losing a key executive, business partner or owner operator shareholder due to illness or death. Insurance policies can be funded from the company’s ongoing cash flow and its inexpensive in comparison to the value they bring to the organization and the remaining stakeholders.
Long term performance-based compensation plans are common for employers to retain key talent and can be funded from the company’s treasury via stock options. These too are inexpensive and require no immediate cash in comparison to the value they bring to the overall enterprise as they are tied to the growth in the value of the business above its current valuation.
Private equity has become another way for private company shareholders to de risk their investments and plan for an eventual exit, Private equity investment funds will invest in the business as financial partners, allowing you to continue to lead and grow the organization if you are so inclined with “other people’s money “or transition the business to the next generations leadership via a management buy-out.
If your business does not have the appropriate succession plan in place, I have some good news to share. You still have time, but your time is now.
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