04/ 03/ 2002
If the thought of being away from your business for more than a week, or even a day or two, seems an impossible dream, you need a plan; one that lets you take time off and brings you the peace of mind to enjoy it. More importantly, such a plan can enable your company to survive your unexpected or extended absence, or even your retirement. "No small advantage when you consider that less than 30% of family businesses make it to the next generation," says Ken Byers, president of Ken Byersand Associates, a Cincinnati, Ohio-based financial services firm which consults with mostly family-run businesses on asset planning, transfer, and protection. According to Byers, the biggest reason these businesses disappear is because they have failed to develop sound contingency and succession strategies. In today's Workshop, Pamela Mills discusses the necessity of developing plans for short or long-term absences from your business.
Contingency and succession plans are separate but very intertwined. A contingency plan is designed for the short-term absence of an owner, whatever the cause. This plan outlines how the business is going to operate while the owner is away and establishes the temporary chain of command. Regardless of whether this absence lasts for two weeks or two years, a contingency plan anticipates the owner's eventual return to the business.
A succession plan incorporates all the components of a contingency plan but differs inasmuch as it assumes the owner will not be returning to the business, because of, for example, retirement, illness, or death. Consequently, a succession plan addresses the permanent transfer of authority and/or ownership.
Often, both temporary and permanent strategies can be covered in one plan. It is essential for owners to put strategies in place that will allow their company to operate without them. The failure to do this can make it extremely difficult for those left behind and can threaten your company's survival.
"Regardless," says Byers, "most small business owners almost always put off planning for their absence, the primary reason being, they believe that no one can run their business as well as they can. Adding to the problem for family-owned business is that determining succession can be difficult, especially if several children are involved. It becomes a sensitive subject that owners try to avoid discussing. And often they're so busy running the business they don't have time to think about it. But these are the companies that many times don't last to be passed along."
If you want your business to have a future, you must consider creating a management system that will allow your business to outlive you, and thrive in the bargain. This is why Bill Pickens, president of Pool Covers, Inc., decided to restructure.
Prior to 1993, the company's management style was vertical, with Pickens at the top as president and his wife as acting vice president. Although they did have a general manager, this person had little decision-making power. This structure worked to some extent, but the company's profits weren't as good as he hoped, and Pickens was feeling increasingly burdened by concerns. Plus it was difficult to take time away from the business. Consequently, he began to consider a redistribution of power via what he calls participatory management.
Now they have an operations manager who pretty much runs the company, whether Pickens and his wife (still vice president and CFO) are on site or not, and two supervisors. He describes their structure as being like a wheel when it comes to decision-making. "We all have a say so," he explains. "Sometimes I'm on top and sometimes, depending on the issue, it's the warehouse guy."
This new approach resulted in one of their biggest growth spurts. Opening the company financials to all employees, and implementing an EOSP program Employee Owned Stock Plan) caused additional, and sustained, revenue gains.
"It took a lot of training and reeducation to go from a vertical orientation to a participatory style," Pickens concludes. "But it was worth it. I sleep better at night, I can take longer vacations, and each year the company is worth more money. Most importantly, I know the company will continue on long after I'm gone."
Although plans will vary, the most effective ones share common characteristics, Byers explains. In addition to addressing every aspect of business operations from small to large, a good succession plan should be:
- Analyzed by experts before being implemented.
- Tested on and by those whom the plan affects.
- Open to people.
- Flexible
- Subjected to ongoing review, at least annually, and revised accordingly.
- An accurate reflection of the goals of all partners involved in the business.
Remember, your employees and/or family members have also worked hard to build your business, and many of them count on its survival. They need you to plan for your absence. It's the responsible thing to do. Next week's workshop further discusses the need for sound succession planning for small businesses.
