When it comes to succession planning, all of the marine businesses in our industry are in the same boat.
That is, every single business needs one, whether the owners are in their 20s or their 60s. And many businesses that already have a plan need a better one.
That’s because most executives have a very narrow definition of succession planning. They believe it’s only for family-run businesses. Or only for businesses whose owners are getting ready to retire. They believe that a succession plan is the same thing as an estate plan. Or that succession only involves the owners and their heirs. And almost all of them believe that once they’ve created a plan, their work is done.
This cover story package was designed to bust those myths and guide you through the steps necessary to create a succession plan customized to your company’s unique situation.
After all, you’re a survivor. You’ve endured one of the toughest recessions in our industry’s history. And now is the time to make sure you have all the tools to build a better future for you and your team. Without a succession plan, you’re just not ready.
The perfect handoff
If you want to witness the perfect illustration of how a well-thought-out succession plan should work, watch runners on an elite relay team make an exchange during the race.
The person carrying the baton doesn’t jog up, stop, and hand it over to the next runner, who stands patiently waiting. Any team relying on that strategy would finish last. Instead, the teammate running the next leg starts sprinting well in advance of the pass, so that when the handoff takes place, both runners are moving toward their goal at full speed.
In the competition between businesses, a handoff in leadership from one generation to the next is no less important to the final outcome. Those companies that slow down and fumble the exchange will struggle to catch up, watching the businesses that don’t break stride disappear around the bend.
The 25-year death trap
In his influential book on succession planning and business growth, written for the Marine Retailers Association of America in 2004, family-business expert Mike Henning says the life expectancy for the typical family-owned business is 24 years.
“For every two family businesses that continue into the second generation, four do not,” Henning writes. “And of the two that succeed, only one survives into the third generation.”
Obviously, there are many factors at play in the longevity and survival of a business, but succession planning is certainly one of the most important. A survey of more than 700 companies around the world, released just before Christmas by Towers Watson – a global professional services company – bears that out.
Asked to identify the top five workforce challenges that could hinder growth and recovery, more North American respondents (52 percent) picked “Lack of succession planning/management” than any other concern, which included problems such as inability to attract or retain talent, disengagement among workers, and inability to pay a competitive wage.
Those figures reflect the business community as a whole, and all of the various kinds of succession planning there are. In the boating industry, most dealerships are family owned, and the most frequent type of succession planning that needs to be done involves the transfer of power from one generation of family to the next.
When to start? The short answer is: Now.
Experts generally believe that succession planning at a small business should begin 15 years before current ownership intends to retire, according to an article written by financial services firm Edward Jones. This ensures enough time to oversee the successor as he or she learns the business and acquires the necessary skills.
Henning says succession is a “womb to tomb” process, not an event, which means a lifelong commitment to developing the necessary values and work ethic in potential heirs. “Unfortunately, many business owners believe succession takes place in the last six months before their retirement,” Henning writes. “Most of these businesses fail within the following five years.”
Given that advice, if you haven’t already begun planning, it may seem as if you’ve waited too long. However, by maximizing whatever time you do have, you maximize your chances for success.
Three essential elements
As no two businesses are the same, no two succession plans are either. Each must be customized to the unique circumstances found in a specific company.
That being said, several components are necessary if a succession plan is to achieve its goals. Henning believes the following three elements are necessary.
The first is an estate plan, which is the foundation for a good succession plan. A suitable estate plan should include “a living will, durable power of attorney, buy-sell agreements, proper insurance protection, an emergency plan, wealth protection for the estate to the heirs, special bequests, fairness applications and special requests regarding longevity for life.”
If multiple children or heirs are involved, determining how to equally divide an estate can be especially tricky. What if, for example, some children are involved in a business and others are not? That’s why experts say it’s important that everyone concerned be as involved as possible in the planning. The first time the next generation learns of the plan should not be while it is being implemented. Especially if there are duties and obligations they are expected to fulfill.
This leads to the second element, which is a family plan. Nobody wants a company to fail. But it’s even more tragic if a family fails because of a business. That’s why it’s so important to make sure the succession of a family business takes family dynamics into consideration as part of the process.
An article published last May by the National Law Review calls unresolved family conflict “perhaps the single most devastating factor that contributes to the failure of a family business,” and calls for a comprehensive analysis of the family to identify those issues.
Henning recommends the creation of a family mission statement to “articulate the family’s commitment to the continuation of the business and the family’s role therein.” It should include the following:
Family values as they relate to the business;
A statement on the unconditional love and caring for each family member;
A willingness to offer support to others when needed;
Rules and guidelines for family participation in the business;
Preparation and training for work in the industry;
Code for family communication and conduct;
A policy for giving back to the community, industry, church and family;
Guidelines for forming a family council.
As with all things related to succession planning, advanced preparation is key. A parent can’t give a child some do-nothing job with a figurehead title at the company, then expect that person to hit the ground running when the time comes that he or she must actually begin to run the business. Children that will one day take over a business should work in it beforehand, learning various jobs and understanding how the company runs and what is needed to run it successfully.
Just as important, however – and an aspect of succession planning that is often overlooked – is the preparation necessary for those stepping away.
While the idea of retirement is attractive in theory, business owners sometimes find it more difficult than they had imagined to stand aside and let someone else run the company they created. Experts say retirees should have a well-thought-out plan for themselves upon leaving the business.
Henning believes “most owners need four to six years to develop and prepare a substantial interest outside the business in anticipation of retirement,” and that it’s important for them to “retire to something, not away from something.”
The third element of a strong succession plan is having a business plan. As was explained in “Dealership 101: The Business Plan,” an article within the March 2010 issue of Boating Industry magazine, this is an essential tool dealers can use to organize their companies and explain what the company does, where it is going and how it will get there – not only to its business partners, but also to itself. (To learn more about how to create a business plan, search for the article “How to: Write a business plan from scratch” on our website.)
Whatever method of succession planning a business prefers, it’s vital in this day and age for a business to be prepared for all the contingencies it may face. Just as being a good business owner is an ongoing process that is never really complete, so is the process of training the next generation.
It’s never too late to start a succession plan. Any plan is better than none at all. However, the more time and effort put forth, the better the result.
Drop the baton during a relay race and you’ll be disqualified. While that may be a disappointing way to lose, it’s still just a race. The consequences of a botched succession, on the other hand, have long-lasting repercussions that can harm a lot of people – and their families.
With all that’s at stake, and all the resources that are available to help, this is one exercise at which you can’t afford to fail.