Ten Business Succession Pitfalls
Various circumstances can make succession planning either difficult or impossible:
The suitable successor quits. A son or daughter may decide to leave the firm after having worked in the family business for years without a commitment to a concrete succession plan.
Business succession isn’t viable. Perhaps there is no child-successor or executive available or willing to take on the responsibilities of your firm. There may be changing circumstances such as a new competitor, loss of massive contracts, or the product or service is becoming obsolete.
You might want to sell. The success of the business is not necessarily based on flourishing over successive generations. It might even be achieved by selling the company at the right time to create investment wealth. Or unexpectedly, a competing business or a group of executives may offer to buy it.
The owner’s inability to relinquish control. One may hold on to a company because it has provided income for years, offering a means to control one’s destiny. Much of the owner’s self-identity may have evolved out of the business.
Power struggles with partners. Some situations incite resentment among co-owning siblings or partners, preventing a succession process.
No retirement goals. Many founder-owners have no interests outside the business. If their work is their life, they may have no intention of retiring.
Can’t face mortality. Many owners (including sensitive children) find it hard to discuss the issues associated with ageing, loss of health or death. Entrepreneurs, who have carved out their destiny, may believe they are somewhat immortal, even if facing real health risks.
No trust of successor’s skill. It is often problematic for parents to see their children as capable successors. They may criticize even their reasonable efforts.
The owner dies. Even before considering succession planning, the owner may die, leaving the responsibility to a spouse or child to conclude or abandon.
There is no life insurance solution in place. Talk to your advisor about how to use life insurance planning for maximizing your estate as you create a strategy for your business succession. There are ways to fund taxes and buy out partners and equalize an estate fairly among heirs. The real risk is doing nothing.