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Sunday, 17 September 2017 19:00

Knowing when: In succession planning for family-owned businesses, timing is essential

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Randy Boileau, left, didn’t plan to hand off his communications firm to the next generation in his family. But when his son, Vince Boileau, right, joined the company about six years ago and expressed an interest in taking over the business, the two developed a succession plan to make that happen. Randy Boileau, left, didn’t plan to hand off his communications firm to the next generation in his family. But when his son, Vince Boileau, right, joined the company about six years ago and expressed an interest in taking over the business, the two developed a succession plan to make that happen. Photo by Katy Batdorff

HOLLAND — When Randy Boileau started his Holland-based communications company 14 years ago, he never intended to hand it off to the next generation in his family.

That changed when his son, Vince Boileau, joined Boileau Communications Management LLC nearly six years ago and the two eventually started talking about whether he was interested in running his father’s business someday. He was, and from that time on, the two have worked together to prepare for the succession.

“The tricky part was how and when” to make the transition, said Randy Boileau, who today focuses his time on strategy and leaves the day-to-day operations to his son. He has spent the last several years teaching his son “the things you just learn by doing over time.”

In doing so, the Boileaus are following a path that experts say is essential to pulling off a smooth transition of a family business from one generation to the next.   

“You have to allow time for that relationship to grow and evolve so as you start to move, nobody is taken by surprise,” he said.

CONSIDER THE ENTIRE FAMILY

West Michigan advisers who work with family-owned businesses say starting early and taking a deliberate approach raises the chances of a smooth transition.

Experts say many leaders of family-owned businesses often fail to give high enough priority to succession planning until they reach their mid-50s, the age at which most people start to think about retirement. Until then, they’re primarily focused on running the business.

“Succession planning usually doesn’t start as early as it could or as early as it should,” said John Skukalek, a principal at the Grand Rapids office of accounting and consulting firm Rehmann. “It’s not on the list of things a business owner wants to talk about.”

Family business owners not only need to talk about succession planning, but they also must do so well in advance of their exit from their companies to ensure a smooth transition when they move on, according to Skukalek and other experts.

“You don’t want to wait until the 11th hour,” Skukalek said. “That happens way too often. You end up in a process that’s just not efficient.”

Quite often, the planning for succession coincides with the owner’s children reaching an age when their own career paths become clearer and they know whether they want to get involved in the business.

Once the leader of the family-owned business identifies a member of the next generation to lead the company, they need to consider numerous issues. Among them is examining how the transition affects the entire family, including the sons or daughters not involved in the business.

“It’s got to take into consideration the family as a whole. You can’t view succession of ownership and succession of management in isolation without also being aware of how it affects the family as the family,” said Mark Harder, a partner at Grand Rapids-based law firm Warner Norcross & Judd LLP who chairs the firm’s private client and family office practice group.

Harder cites the case of a client who’s going through succession planning. One child is involved in the business and two are not. The client wants to ensure the two who are not in the business are taken care of as well.

“We can’t look at the succession of ownership and management responsibility to the child who’s active in the business in isolation,” Harder said.   

Likewise, owners need to consider how opting to transition ownership to a family member will affect existing management and employees.

“How do you make sure they still feel they still have valid, viable careers and opportunities for growth and development and success, and that it’s not going to be cut off or blocked because of the desire of the son or daughter to rise up through the ranks and run the company,” Harder said.

FOCUS ON TIMING

Experts say timing is critical when it comes to preparing a succession plan. Move too quickly and the next generation may not be fully prepared to take over. Take too long and you run the risk of the younger generation getting impatient.

“If the senior generation waits too long,” Harder said, “the younger generation may get tired of waiting for that opportunity to grow and develop and take a leadership role, and may be more inclined to go off and work somewhere else if their career path is not clear for them.”

Experts say good succession planning for a family-owned business also needs to address early on what the elder generation needs to get out of a transition, such as continued income to sustain themselves financially in their retirement.

The senior generation may be reluctant to give up control or a job if they are not financially secure. Their financial status will influence how a transition gets structured.

“Mom and dad really need to determine what they might need to get as far as cash out of the company and how that might happen. Do they need it immediately or can they take it over the course of years?” said Nicholas Reister, a partner at Smith Haughey Rice & Roegge PC in Grand Rapids who chairs the firm’s trusts and estates practice group.

PREPARE TO PIVOT

Any succession plan must identify the successor upfront — presuming there is one within the family — and clearly define the roles of each family member involved in the business.

Once a decision is made on who takes over, the senior generation needs to ensure the next leader is properly prepared for the role and that any gap in skills gets addressed.

While succession planning should follow basic rules, each family and its circumstances are different, and the plan needs to bend to the family’s dynamics and situation, Smith Haughey attorney Reister said.

Just like running a business, owners should prepare to pivot and alter the succession plan should circumstances in the business or the family change.

“There’s no silver bullet or one size fits all,” Reister said. “It’s very much a customized, fluid process that should take years, because if you try to force something … it can be real trouble for that family and that company.”

In grooming the next generation, business owners can start by having the son or daughter do an internship at the company or with a friendly competitor, he said. They can go to work elsewhere for a period and develop their skills, then join the company and work their way into leadership positions.

One mistake Reister sees on occasion is that the generation taking over the business comes with unrealistic expectations “of what it means to run a company and what it means to own a company.”

“I’ve seen a number of different organizations where the next generation has only a partial view and they have a very rose-colored glasses (perspective) of what it means to be the boss,” he said. “They might not understand the late nights and the hardships and the burning in the gut at various times. They only see the benefits of being a business owner and the outward appearances of being in charge.”

PASSION, NOT OBLIGATION, MATTERS

While a next-generation owner can usually develop the leadership skills over time to run the family company, it’s also critical that he or she is committed to running the business. Similarly, experts say family members should not feel pressured to take over the business if that’s not what they truly want to do in life.

A properly planned succession for the business will enable a family to avoid those situations, said Rich Noreen, a partner at the Grand Rapids office of BDO USA LLP.

“They don’t have a passion for it or the capability, but they feel obligated to take it on and run it. The business will probably suffer and the family will probably suffer because there isn’t alignment,” he said. “You have to be honest and forthright, and if you have good strategy those things will sort themselves out.”

Read 2771 times Last modified on Monday, 18 September 2017 11:02
Mark Sanchez

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msanchez@mibiz.com

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