When it comes to succession planning for business owners, there is no magic bullet or single best practice. However, many owners start the process too late and do not document the necessary information, David O’Brien of Mosley, Pfundt, Glick & O’Brien said at an education session at the 2019 International Builders’ Show in Las Vegas.
One of the most damaging things owners can do is set a specific date or for when they plan to retire, O’Brien said in his education session “Succession Planning: Who Will Be Next in Your Seat.” These hard dates create expectations for future owners and employees of the company and can lead to conflict if the dates aren’t strictly adhered to. Often, these dates are hard to hit because the succession plan is poorly mapped out and is not started far enough in advance.
Many owners feel their business defines them, O’Brien said, but don’t consider that naming and transitioning a successor does not mean they need to exit the business. Starting succession planning early can ensure that the process goes smoothly, and also can reveal that ownership and control of the business does not need to be given up overnight. The actual process of transitioning completely out of all the roles as an owner could take years, though, O’Brien said. Several smaller responsibilities can be transitioned immediately, however tasks that require some mentoring and teaching cannot be transferred overnight.
Even the process of determining a successor can be challenging and time consuming. Many construction-related businesses are family-owned, and while transitioning to a son or daughter seems logical, thought must be given behind this decision. O’Brien said owners need to look for strong work ethic, talent, the level of respect for the individual, the individual’s problem-solving ability, communication skills, and personality when evaluating a potential successor.
“Personality is as important in this as anything,” O’Brien said to a room of builders and contractors. “Are they a good fit for the culture you want to maintain? All of you have a certain culture in your business, and probably want to maintain that culture. Culture is very important. Oftentimes, in mergers that do not work, the cultures clash.”
A key step after identifying a successor, O’Brien said, is writing down all functions of the owner’s job as well as creating a new organizational chart under the new owner. The organizational chart helps alleviate miscommunication and ensures that everyone in the business is clear about what their role and responsibility will be after the transition. The detailed outline of job functions allows a hard document to be handed over to the future owner and can be a point of reference during the transition process.
“Put the [job] functions in order of importance and their ability to be carried out by someone tomorrow,” O’Brien said. “This is why succession planning doesn’t get done, because many [business owners] don’t take time to write things down and mentor [the successor].”
After identifying a successor, O’Brien said it is best to have a period of gradual transition with the new owner. The old business owner has an obligation to help mentor and teach the newly identified business owner. Another role in the transition process that many owners skirt or avoid doing, O’Brien said, is serving as a door-opener. It is the old owner’s role to introduce the new owner to crucial partners and stakeholders to provide the new owner the best tools to succeed.
“I have seen this happen more than once where the owner would not be the door-opener, would not share his meetings and his contacts with the person that was supposed to take over,” O’Brien said. “How do you expect them to take over if you won’t open the doors? That’s your [owner’s] responsibility to open doors for those behind you.”
The process of ownership transition can be a long process, involves many parties, and can take many forms. However, written documentation of the plan can provide businesses goals and objectives to keep the transition on target. Regardless of how businesses choose to enact a succession plan, O’Brien said it is never too early to start thinking about succession plan.
This article originally appeared on ProSales.
