Family business: Should I stay or should I go?

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I am working in the family business for my parents. I don’t have any shares and just general promises that someday it will be mine. I don’t agree with what my parents are doing and think they’re making some serious mistakes that could make this a tougher business in the future. What should I do?

THOUGHTS OF THE DAY: Kick them out. Leave. Work together to fix the problems. Decide how much you want to work in this business for the long term. Continue reading “Family business: Should I stay or should I go?”

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Family Businesses Need Succession Plans

We’re dealing with a family member who should be retiring. Unfortunately she still owns the stock and is very controlling. We want to take the company forward, but don’t have the authority to do that. She has done some estate planning with experts who don’t seem to recognize that control of the stock is essential for getting on with building the company’s future.

THOUGHTS OF THE DAY: Most small businesses don’t survive the first generation. Use shares to invest the next generation now. Figuring out how to secure the senior generation’s retirement can be a challenge. For business owners who have spent a lifetime managing their company’s profits in order to avoid paying taxes, tax planning can take on outsized importance. Confidence in the next generation’s ability to perform has to be earned.

Not having a succession plan for the business to survive its founder is a recipe for disaster. While 50 percent of business owners plan to pass the business on to the family, only 15 percent go from Gen 1 to Gen 2 and only 5 percent make it to Gen 3. Thirty percent plan to sell to employees, only 5 percent do. Forty percent of businesses close or liquidate.

It’s time for every owner to work out a solid business transition plan, while they still can.

Sharing ownership and control empowers and engages people. Use it to your advantage. Passing ownership to the next generation can be a loaded topic. For owners who have spent a lifetime running the company the way they wanted with little interference from anyone, giving up control is tough. Do it anyway.

Transitioning ownership is fundamental for the company’s long- term survival. Find people who want the business. Give them a stake in the future. Work up to giving them full control, using a timetable and a set of agreed-upon conditions.

Many worry they won’t have enough to live well in retirement. When the company has been the major source of income and assets have been plowed back into the company to keep things running, there may not be enough funds for retirement.

Build a plan to grow company revenue and profit significantly, to pay for Gen1’s retirement and Gen 2’s additional costs. Figure out what the senior generation actually needs to retire. Buy time by elongating the horizon over which those funds must be assembled. Budget funds for your primary task: securing retirement, building the company and transitioning ownership.

For business owners who have spent a lifetime avoiding paying taxes, it’s hard not to focus on the tax bite of transferring ownership. That concern may be overblown. When it comes to tax planning, things keep changing. Estate plans set up before 2014 need to be reviewed. Increasing amounts of value can be transferred tax free — more than $10 million per couple as of today’s writing. Even if taxes are due, it’s better to grow and pay taxes than to let the business fail trying to avoid them.

Start distributing ownership to those who want the business while you’re able to participate in the process. Limit ownership to people inside the business. Use insurance plans to care for family members whose interests lie elsewhere.

A business with a future has a broad, well-trained, highly invested management team. Most owners think it’s even better if some of that team comes from the family. Be certain the kids want the business before you begin a succession plan.

The family’s next generation faces big responsibility and takes big risks when they enter the business. They must match and then beat, the outcomes of their elders. They have to learn the business, plan for the future, take action, face risks and be accountable for outcomes. They must prove themselves worthy by demonstrating increasing skill at running the business. Confidence in the next generation’s ability to perform has to be earned.

Use a development plan with hurdles and rewards that defines how stock is transferred. As the next generation steps up, avoid decision making stalemates by making it clear through ownership who’s running the company.

Looking for a good book? “Small Business Ownership Mistakes: What You Don’t Know Will Destroy Your Business,” by Amy Rose Herricki.

 

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Get Your Succession Plan in Order Now

We have always tried to recruit good people, promoting from within if possible. We think we have people in place who could play a significant role in the company’s next generation. We need to understand their capabilities and commitments on a whole different level. And we need to be clear about our expectations of them. Is there a match? If we mess up, this company’s future could be in doomed, or we could be back in the driver’s seat exactly when we’re ready to retire.

Thoughts of the Day: Planning out the next generation can be a challenge. “Now” is almost always the right answer when considering if it’s time to get moving on figuring out the future. Looking for talent inside the company is smart. Knowing when talent has to come in from outside is crucial. Figuring out any gaps well ahead of time gives you options.

Looking to the future can be intimidating. Thinking who might run the company when you’re no longer around shows that you’re mortal and replaceable. Who wants to admit to either of those? Most owners underestimate the time and effort needed to form a succession solution. Or, they get busy running the company and don’t make time to work through the detail. Or, they follow the model they have followed — one person in charge — without realizing that a management team might do a better job.

Lack of clarity about succession leaves employees farther down the line in the dark as to what might unfold if something were to happen to the current owner(s). If something unexpected happens, you want people who are prepared to step up. You want everyone in the organization to actively support those who do step forward. It’s easier to follow a plan already in place that everyone agreed to when there was the benefit of time to work through details.

It is preferable to be prepared with a solution than to be caught short. That means taking time to brainstorm and plan, even if those plans eventually get scrapped in favor of new plans. Having options is always better than being faced with a critical decision and no preparation.

Start by assessing the talent pool inside the company. Ask people what they’re good at, what they want to learn about and where they see themselves in the future. Expose employees to leadership and opportunities beyond their current roles.

Make it part of everyone’s job to participate in some form of outside education every year. Try job sharing with a peer company to expose your employees to another way of doing things and to bring in people who might look differently at how business gets done. Find out who wants to step up and who is more comfortable taking a backseat role.

Make sure to profile the jobs at the top. What are the jobs today? What skills and talents will be required five to 10 years from now as the company continues to grow and the marketplace changes?

It’s worth noting that any organization knows what it knows — and that’s not everything. There are ideas, solutions, suggestions and options that others have thought about that could be useful to consider. Some of those outside ideas might get rejected and some might be a fit. Ignoring the possibilities that others can bring to the table is just plain dumb.

Constantly challenge your team to get smarter, faster and better at what they do by exposing them to things outside the company. Ask employees to take courses, go on sabbatical, spend time working for another company. Try anything that helps to expand their horizons with information that they could bring back to help your company.

If there are gaps in what the company needs to know — at present or in the future — you have a couple options. Hire the talent. Hire teachers to train your employees. Get people to practice through simulations — for example take time off and let your employees deal with what comes up.

Right now, unless you’re in crisis, your company has time to work through its succession planning needs. Working on successions planning is job number one for every business owner. Ensure that the company is prepared for change and smooth transitions, ready to step into its future when the old guard steps down.

Looking for a good book? Try “Leaders at All Levels: Deepening Your Talent Pool to Solve the Succession Crisis” by Ram Charan.

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Come Play the Owners Game

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A Unique Opportunity to Network with Like-Minded Business Owners

 

Come Play the Owners Game with Strategy Leaders and Alcott HR!

 

Thursday September 26th

5:30 pm – 8:00 pm

Stamford Hilton 

Stamford, CT

*This event is free of charge*

(Appetizers and refreshments will be served)

The Owners Game helps business owners get smarter about running a business, without having to suffer the real life consequences. It is a team game played with a virtual company, full of challenges, with opportunities for strategic thinking and big picture rewards

The goal of the game is to be ready to sell the business, accumulating enough to comfortably retire.   Each team makes decisions of how the company should move forward, strategically and tactically, with situations that simulate real life experiences.

At the end of the game we recap and analyze the results, answering questions such as:
  • “How do I make more profit?”
  • “Where should I be investing my time as a business owner?”
  • “What do I need to do to reach my goals and secure my future?”
  • “Is my business prepared for the obstacles it will face?”
  • “What are the next steps?”

More information and to register, click here!

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Stop Reacting and Start Planning

Seeing us – me, my employees, my managers – get bogged down with day-to-day issues. Know that as owner I should be planning and directing where the business is going. Realize that I can get myself in trouble by reacting instead of looking ahead. Also know that we can create problems by not taking action to fix it – whatever “it” is. What advice do you have to help me stay on top of priorities?

Thoughts of the Day: Identify the top objectives for the company and continuously review where you are versus those objectives. Set up systems for people to meet and share information. Celebrate progress. Organize teams to work on persistent problems.

What’s the sight-line on the horizon that everyone in your company is focused on moving towards? Get clear on that, and it’s easier to figure out if everything you’re doing is heading the company in the right direction. Without major goals it’s easy to drift off in the wrong direction.

Write down what you want the company to accomplish in the next 5 years. Consider the following:

  • double revenue, triple profit
  • add 1 new employee for every $150k of gross profit
  • operate within budget
  • reduce operating costs by 1% – 3% / year
  • add enough clients each year to allow the company to dump the bottom 5% – the least profitable, most troublesome
  • sell new products : old customers, old products : new customers
  • expand marketing reach annually while reducing the ratio of marketing spend / revenue. 

Set up a meeting schedule to review progress, discuss obstacles, agree on next actions to be taken.

 Meetings can be great. Improperly managed, they can also suck the energy out of any group. Limit meetings to an hour, max two hours. Break up long days of conferences into a series of 1-2 hour activities.

 Work with intention. Make sure enough of the right people are involved. In my experience, it is more likely that too few people will be invited to meet, than too many. Don’t be afraid to ask people to give up “work time” to attend meetings. People need to share information in order to function well.  

Use meetings to inform, brainstorm, analyze and problem solve. Different purposes require different formats. Information sharing meetings do best if data is presented in report handouts or overheads with handouts. Brainstorming meetings need a facilitator who can document what’s being said. Analysis and problem solving meetings need to be focused towards a desired outcome: to reach a conclusion, solve a problem, etc.

It helps to understand that we remember only 15% of what we hear, 50% of what we write down, and 85% of what we hear, write down and play back. Take notes in every meeting. Start meetings with a review of the previous meetings’ notes. Know whose job it is to take and disseminate notes. Get notes out within 1-2 days of the meeting’s conclusion.

Build a culture of success by taking time to acknowledge and celebrate progress towards goals. Use checklists of to-do’s to stay on track. Recognize groups of people who are getting their tasks done according to the commitments they’ve made.

Every organization runs into problems from internal and external sources. Teach employees to be comfortable bringing up issues in meetings. Take time to brainstorm the source of problems. Assign task groups to work on rooting the causes.

Build a culture of taking action. Reward people who fix problems before they escalate into something worse. Emphasize the value of always looking to make things better.

Everyone needs space and time to think, reflect, plan. Schedule it into your day. Lead by example. Show your employees that you have the discipline and skill needed to lead the business. Make it your #1 priority to set a schedule, meet regularly, encourage information sharing and take action to work the company’s plan.

Unclear about your company’s goals and check in structure? Give us a call!

Looking for a good book?  The One Hour Plan for Growth: How a Single Sheet of Paper Can Take Your Business to the Next Level, by Joe Calhoon

Want to print this article:  Stop Reacting and Start Planning

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