In the first post of this series, we explored the benefits of starting a transition plan for both you and your business as early as you can. That is, anywhere from 2-3 years or up to 10 years before you actually wish to fully transition out. We referred to a recent survey that suggested that up to half of family businesses do not have such a plan in place. From here, we outlined three questions that can be used to better understand why this might be:
- Whose responsibility is it really to initiate these discussions?
- Are the impacts of an involuntary transfer clearly understood?
- Where do you begin … and are the costs and time required very high?
We covered the first question in the initial post and how important it was to create an “Equal Onus” environment (shared responsibility) among the owners and their children / future owners. Creating and maintaining this environment is very difficult for family businesses so engaging with advisers specialized in this area might make the most sense for you. Now, let’s explore the 2nd question …
Are the impacts of an involuntary transfer clearly understood?
Asking someone to create a picture of what their business looks like without them leading it is difficult, if not impossible to answer. If you have been running your business for a long time, seeing a picture of what the business … and your life looks like takes a lot of deliberate effort. There are simply too many things that need to get done and since you enjoy what you are doing and enjoy seeing the results, you wait until you are more motivated to carve time out to think about the future business without you. The problem is of course, the motivation to spend time in this area doesn’t automatically come.
Would you be motivated to create a transition plan if you understood the real costs of not taking action soon enough? Let’s explore further. Some of the costs include: fewer sale options available to you, increased tensions with family relationships working in the business, relational issues with suppliers, and customers, all resulting in generally reducing the amount of wealth transfer to next generation. These are significant costs, no question. However, I don’t believe they tip things in favour of the early transition plan. Something more must be at play, I believe. There is a hidden cost of an involuntary transfer of a business that you likely have never thought about before. It is as unique as your fingerprint. And, it can be very significant, if not the largest cost of not creating a plan:
Your Future You: The untapped potential of the future you … in each of your roles among your family and other relationships, the business / non-profit communities and within your own community. This is the opportunity cost of your time, money and resources that you spend in your business, each and every day, rather than on building something that might be around the corner – and quite possibly bigger than you can ever imagine.
I believe that if you take the time to more fully explore this Future You, it just might be what tips the decision for you to begin your transition plan now. How can I say this with absolute confidence? Let’s look at a popular change definition that organizations use that can be applied to the decision to create a plan or not:
Change = Benefits of a Change > Perceived Costs of a Change
Benefits of a change = (Dissatisfaction of current state) X (Benefits X Probability of Success)
Dissatisfaction of current state
Many people believe they will wake up one day and just know when it is time to exit their business. This occurs, they believe, when you are no longer excited about getting into work, the challenges are overwhelming and these feelings start happening more frequently. This does work out well for some people but I would think it would be the exception for many business owners. So, it is pretty safe to conclude this factor will not become large enough to motivate the person toward proactive planning.
Benefit of a change
To see the benefits of an early transition plan, you require a fairly clear vision of both Your Future You as well as a vision of Your Business Without You. If you do not take the required time for setting these visions and partnering with a trusted advisor to walk you through creating and then executing, you would likely default to waiting until your only course of action becomes the dreaded “R” word … retirement. And, we all know this word involves picturing an end to something, winding down, ceasing something … so you will put this off as long as you can. Creating these two visions might be easier for serial entrepreneurs, who are used to starting businesses and then eagerly waiting to sink into the next big thing. However, it is not easy for the majority of business owners to create and execute on – otherwise the statistics of businesses without plans wouldn’t be as concerning as they are.
Probability of Success
You simply have to take a look at how you created and executed goals and/or visions in the past for your business. You likely did whatever it took to accomplish a goal, anticipated the hurdles and overcame them, one by one. You likely gathered a great team around you to help each step of the way. Based on this, your probability of success is likely high, no matter what goal and vision you set your mind to. So, you have this working really well in your favour as you ponder a proactive transition plan – excellent!
Perceived Costs of Change
The word “perceived” is used deliberately here. The actual costs (time, money, resources) of creating a transition plan proactively are complex and could be expensive. However, it is how large you perceive them to be that is most relevant in whether you will initiate a transition plan. To help you close the gap between your perceptions and the actual costs, we will explore some tangible and intangible costs in the last part of this series. And, we will provide a useful checklist for you to start working on gathering these types of costs. For now, I can safely say that all of the costs you incur proactively would be significantly less than if you went through an involuntary transfer for your business. The economic logic here is pretty intuitive and likely applies to anything you do proactively in your business. More time planning an event gives you more options and likely a big cost advantage that will be tough to ignore, should you choose to identify it.
In closing, I would like to leave you with an urgent call to at least go through each driver of the change model used above and see which of the drivers are most impacting your decision to hold off on creating a transition plan. And remember, whenever we talk about a transition plan, we are talking about two plans, Your Future You and Your Business Without You. You cannot understand the need for a transition plan unless you first carve time in your schedule to work on these plans and engage an adviser you trust to help you through the process. A friend of mine gave me powerful words that have resonated in my life so I pass them onto you: “Do something today that your future self will thank you for”. Let’s get started!