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Recognizing the Challenges in Succession Planning


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Every business owner knows succession planning is important to ensuring continuing operations after the current owner retires or passes away. It is as important as developing a business plan for achieving profitability. When the business is family owned, planning for future ownership can be even more difficult because emotions are added to the mix. This is true whether the business is an agricultural producer, retail store, restaurant, or any other family-owned operation.

Ready to Face the Future



Recognizing and overcoming the challenges in succession planning is important because avoiding the process can lead to the business facing state asset distribution or so much internal turmoil and legal wrangling that it shuts down. Following are some of the most common challenges.

• Fair distribution of control – Like the story of the prodigal son, there are many instances where one or more children diligently work the business over the years and others leave to pursue careers. When the business owner is ready to retire or passes away, the ones who left may decide to return. How do you fairly distribute business control when the ones who stayed believe they should have greater financial interest and management control than those who left? One suggestion is to give the family members who helped build the business over the long term the majority interest, and split the balance between the ones who left. In the agricultural business, the Farm Credit Network suggest letting the ones who stayed have full management control but split ownership of the land between all successors.

• Letting go – It is difficult for an entrepreneur of any ilk to let go of control when he or she built a successful business from the ground up. The reality is that no one lives forever, so there is a choice. You can keep tight control and take the risk of successors not knowing how to run the business when you retire or die. The other option is to establish an LLC in which current owners remain the majority owners while letting successors slowly assume management responsibilities. This is a “peace of mind” strategy because it is heartbreaking to see a business that was built over decades soon falter under new ownership.

• Retirement planning – Can the current owner afford to retire? If not, the younger generation will question the wisdom of assuming ownership of a business that does not create savings. Financial planning and achieving profitability are key elements of succession planning and maintaining successor enthusiasm for becoming new owners. It is wise to let an outside financial consultant objectively analyze the business and prepare projections that are periodically reviewed.

• Open communication – Business owners who built their businesses from startup to long-term profitability are often close-mouthed about their desire to retire. They fear employees will leave or possible successors will begin in-fighting for control. A family business has even more communication challenges because the older generation maintains a position of strength as the one with the experience and knowledge, and the younger generation is hesitant to make suggestions or indicate personal preferences. Establishing open and honest communication is not always easy, but it is one of the key elements to successful succession planning.

Get Proactive



There are other challenges, like managing changing and ever more complex government regulations and tax rates, and unexpected economic downturns that change the financial picture. It is impossible to anticipate every challenge, but it is possible to take an active approach to planning for the transfer of business ownership and control.

OGS Capital works closely with businesses ready to start the conversation on succession planning. Experienced consultants work closely with owners to develop the information needed to make decisions based on well-researched marketing plans, financial projections, and strategic analysis. Simply complete the short OGS Capital online contact form to initiate the process.

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