Family-owned businesses can avert legal headaches and emotional anguish by
having succession plan set in place before it's needed. Such plans are
particularly significant in West Michigan, where families own an estimated 88.8
percent of businesses, according to the Family Business Alliance, which counts
120 family businesses among its membership.
The key word to effective transition plans is "proactive," according to Ellie Frey, director of the Family Business Alliance.
"Without a succession plan, there are risks both in management transition and ownership transition," said Frey. "You can avert, or at least mitigate, those risks. Also, with a succession plan, you can spell out, if you are the owner or CEO of the company, what you want the business to look like in five to 15 years. It's a way to preserve a legacy you've been working to cultivate."
Succession plans should be in place long before scheduling the boss's retirement party.
"Our industry tells us succession planning doesn't happen overnight. It takes five to seven years for a succession plan to be implemented. And that may be conservative. Sometimes it takes longer or shorter," she said.
"Most entrepreneurs are so caught up in the business of the business, and every market is so competitive today. It takes so much energy to succeed in your given industry that this type of planning often times is neglected, and when it's neglected, that's when there's the biggest resistance to passing on the baton," said Jim Steffel, a partner with Warner Norcross & Judd LLP.
A well-thought-out succession plan includes: agreed-upon job descriptions for key players involved in the changeover; a determination of who will own the company, and its management structure; providing leadership training to the next generation; bringing alongside a consultant or conferring with the board of directors; and a good estate plan.
Some entrepreneurs who were adept at launching a business and defining its business model are reluctant to establish a transition plan because it means releasing the leadership reins, said Pamela MacDougal, an associate with the Dykema law,, firm where she concentrates on transactional tax matters. "They are all action focused and taking risks, and they define themselves by their business and think of the business as their alter ego," said MacDougal. "Succession planning is about protecting something that exists and handing it off to somebody else. So when you think about that, you understand why succession plans might not be at the top of the list for an entrepreneur."
Joe Horak agrees. He is founder and co-president of The Relationship Research Institute of Michigan, senior director of leadership and family business consultant for consulting firm DWH, and an adjunct professor at Grand Valley State University's Seidman College of Business.
"The biggest problem with succession plans is there's not a plan," said Horak. "The founder has a controlling personality who makes things happen and has a hard time letting go. They think they're immortal and they may 'die-in-the-saddle' kind of thing."
If the founder can be convinced a succession plan is in the business's best interest, Horak recommends taking some specific steps.
"We recommend family business be 10 years out when talking about succession. It
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