The Final Test of Ownership:
Three Questions That Need Asking
Business owners are a special breed. They have great ideas. They work hard. They provide jobs. Yet despite their accomplishments
many are going to fail the final test of ownership: the succession from their business.
The reason? After spending years developing the skills to grow their business, very little thought is given to transitioning from it. As a
result, succession planning keeps getting pushed aside. There are too many uncertainties; too many questions that need answers.
Three are asked more than others.
Question One: How do I begin?
Today I met with the owner of a successful business. For an hour he talked to me about his plans. He wants to restructure his
company. He is giving his daughter more responsibility. He is concerned about protecting his assets. He wants to expand. And in five
years he hopes to retire. When he was done, he asked me what I thought. I gave him my best answer: “It depends.”
That’s not what he expected. I continued. “To me it looks like you are throwing paint against a wall hoping to create a masterpiece of
succession. It won’t work. First, you have to define the end game by taking a comprehensive view of your transition, including your
personal and family goals. Without this, you won’t have a context for your plans. Should you restructure the company? It depends on
what you want the company to be ten years after you leave. It depends on whether or not you want to gift it or sell it or sell part of it to
your daughter. It depends …”
In a few weeks we’ll spend a day together to discuss the issues affected by his succession. We’ll answer the first question by painting
a clear, visual picture of his post-transition life. We’ll clarify what he wants to do; we’ll look at his business legacy; we’ll set goals for his
estate and foundation. As Steven Covey advises, we’ll begin with the end in mind.
That’s where succession planning starts. And that’s when the next question is asked.
Question Two: What do I include?
The movie, “About Schmidt” begins with a close-up of a clock. At precisely 5:00 PM the film’s main character - played by Jack Nicholson
- rises from his desk for the last time and steps into retirement. Business owners rarely do that. Here’s why.
Most owners have half or more of their personal wealth invested in their company. For them, the business issues and personal issues
of succession planning are inseparable. Financially, they need to know what the business is worth in order to complete their financial
planning. If the value is down, they will have to adjust the business or their plans. That’s what happened to one of our clients.
Fortunately, he learned about this years before his planned retirement and is now making the necessary adjustments to increase the
business value.
As difficult and complex as the financial issues are, the emotional challenges of succession planning can be even greater. Particularly
in a family owned business. Without proper planning the business can become a source of contention, when it was intended to be a
shared benefit. And without proper planning, the owner will have a difficult time adjusting to life when freed from the daily challenges of
running a growing company.
Finally, business succession planning will not be complete until the successor leaders have been identified, trained and released to
lead. I know several owners who are having a hard time letting go. One stands out. For years his daughter has been preparing to run
the company. She’s earned the respect of its managers, employees and customers. She fulfills her obligations. She makes the
business money. Even so, her dad is having a hard time entrusting the eighty-year-old company to her care. Until he does, his
succession plan is incomplete.
Succession planning addresses the financial, emotional and successor issues unique to business owners. By now it should be clear
that the entire process takes time.
Question Three: When should I begin?
I’ve worked with enough business owners to form a biased answer to this last question. Ideally, succession planning begins before
the business starts up. If an owner knows when he or she will leave the business, they will usually do a better job preparing to do so.
Realistically, this seldom happens. In most cases the phrase, “the longer the runway the smoother the landing” should be kept in
mind. A process that begins between five and eight (or more) years before the transition is usually more satisfying and effective than
one that is rushed.
At some point, every business owner will face the final test of succession. The questions of beginning, content and time are not meant
to be comprehensive. They are meant to begin a process that will result in a successful and rewarding transition.
©2004 Paul Brown