Trillion Dollar Transition

Boomers Rewriting History In Business Succession

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ongoing strategic planning and should be reviewed regularly,” he said. “Succession planning is unique in that it is an inherently forward-looking concept but is based, at least in part, on evaluating the past. In other words, where has the business been, where is it now, and where do we want it to go? As time goes on, all businesses change, and so too should their succession plans.

“It’s never too early to begin formulating a succession plan, and there is some truth to the old saying that ‘Failing to plan is planning to fail.’ Succession planning comes in many forms and is

DELUCA, PARTNER WITH SMITH PAULEY

not a static event – it’s a complex process that requires strategic thought and careful implementation, often over a period of years.”

Rob Wellendorf, president of Execso Business Exit Planning, said he enjoys working with clients that have clear and achievable timelines.

“I like that sort of landing strip, looking out five to seven years,” he said. “If we have even two to three years that works, but anything shorter than that, I think the owner has what I call blurred vision.”

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Fear of the Future

With so much at stake both at the individual company and global levels, it’s hard to imagine why business owners are so lax in their preparation for exiting their businesses. Some of the rationales offered by CNBC in a recent report include boomers’ reluctance to talk about exiting a business because it signals the end of their productive lives. In other cases, business owners lack the knowledge of succession planning to ensure they receive fair market value for their company, especially in these cash-strapped times. And some simply hide behind the demands of today to escape the uncertainty of tomorrow.

“I smile when I say you should start planning for your exit the day you start your business. Business owners shake their head and say, ‘I’m just trying to survive,’” Wellendorf said. “That normal business life cycle takes three, four, five years to feel like you really have a business, or you really have some success. But in those early years, I talk a lot about business continuity planning and just generally what that means is looking at any and every risk that might disrupt that business or the cash flow for that particular owner.”

Regardless of the source of the reluctance, the consequences all tend to lead to the same place – fewer options for when life and health take the decision-making process out of an owner’s hands and pushes it to the forefront, ready or not.

“Often, succession planning is not initiated until the imminent retirement of current ownership, resulting in a situation where the appropriate time to identify a purchaser or groom the next generation of owners within the company is no longer available,” said Scott Scheef, partner with HBE LLP. “Conversely, by starting early, business owners can determine who may be the right fit to purchase the company or, if the purchaser is among the current employee group, to address what we like to call the company’s bench strength.

“By reviewing the company’s bench strength, business owners can assess what pieces of the puzzle they have in place and what areas they may be weak in. Business owners can then take the necessary steps to retain the individuals that are key to the company’s continued success and recruit or train individuals in areas that may need additional attention.”

Studies are showing the situation is becoming more dire as the oncoming generation, Millennials, are proving to be reluctant to take over family firms and outside buyers aren’t as eager to buy right now, either. Refinitiv recently noted global merger and acquisition activity dropped 16% in the third quarter of 2019, the lowest in three years, suggesting many potential buyers are willing to just lay low, putting the squeeze on business owners looking to sell but who haven’t laid the plans to do so.

“One of the most common mistakes business owners make is overlooking the fact that succession planning is a tremendous way to build value in the business well before an actual transition takes place,” DeLuca said. “Another is viewing succession planning as a single transaction. Many businesses have a plan