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Succession Planning: A Critical Chapter in Any Success Story

by Justin Mentele

Members of this Association represent success stories, many of which are also family stories. These stories include innovation, risk, sacrifice, and exhausting effort. They are stories with heart, and that sometimes makes it difficult to write the chapter in which the main character surrenders the lead role.

It can be tough to talk about succession, especially now, when there is little time to talk about anything. Yet the intensity and challenge facing the farm equipment industry may in fact serve as a catalyst for many leaders to consider now the right time to step aside and slow down.

When it is time to consider a transition in leadership and ownership, you should first define two terms that can create confusion: estate planning and succession planning.

Estate planning covers the transition of financial wealth or physical assets from one generation to the next. The process typically begins during one’s lifetime but often does not complete until after death. This hand-off process requires difficult decision-making and thoughtful planning.

Succession planning is based less on physical and more on psychological transitions. At the heart of succession planning is a person, or group of people, who have been in control of the day-to-day and strategic operations of a company. It represents what can be the emotional task of transitioning control to others. The process of co-creating psychological ownership of the vision, strategy, goals, decisions, performance, and results of the company is not easy.

Both types of planning are critically important.

I have advised companies that have had the management transition or succession ready but not the transition of physical assets. This created conflict, because although the business was able to run from a management perspective, conflict emerged, because those managing the business didn’t control the assets and were therefore unable to capitalize on the strategic plans set forth.

I have also seen the opposite happen in which a business owner puts all his or her focus on the estate plan to avoid the business being stressed from a cashflow perspective. This is absolutely an important piece. A problem arises though after the business owner passes away. If there is no plan related to who or how the business will continue, odds are the business won’t survive the generational loss. Even if management is more than capable to step in and continue the success of the company, without proper planning and strategy, it is a difficult road.

How do we smooth this road? Our clients follow these general guidelines.

1. Succession Planning cannot be done in a vacuum.

Succession planning is personal. This can sometimes cause business owners to want to tend to it alone. Fight this feeling! Working through a succession plan by yourself is a guaranteed way to miss major aspects that will lead to problems later. Consult professionals.

2. Succession Planning is not a static event.

Another common mistake is believing that once the preparation of a succession or estate plan is complete, the task is done. If only this were true. There is a reason that both estate and succession plans are defined as “plans” rather than “events.” You should occasionally reflect on, monitor and possibly adjust your plans.

3. A plan is not executed unless it is shared.

Ensure you have a viable succession plan by sharing it. This is probably one of the hardest aspects of enacting the plan because this is where some feathers can be ruffled. However, a few ruffled feathers is better than a future scenario in which management or family do not know your intentions for the business. These conversations also should not be conducted in a vacuum. Use professionals to help facilitate them. The goal here is to provide a shared understanding of how to move forward. It will simplify and expedite the transition.

Succession and estate planning can be uncomfortable, but they can become as much a part of a business owner’s legacy as every other chapter of their story. Ensure a successful future for your business by crafting this chapter the right way.

Justin Mentele, CPA, is a principal at KCoe Isom specializing in manufacturing services. He works across all financial spheres—audit, tax, and consulting—to help his clients understand their financial performance and make adjustments that dramatically impact profitability, efficiency, and employee retention.