A few hours after my father died, my shell-shocked mother, sisters, and I were taking turns answering his cell phone and receiving the next day’s bagel orders.
We had no choice; the diners and grocery stores in South Florida would still need their deliveries regardless of our family tragedy. The last thing we could afford was to signal to customers—or our competitors—that the passing of the company’s founder would disrupt our seven-day-a-week operation. It was essential to maintain business as usual.
That, it turned out, was the easy part.
My father, who was 75 when a chronic stomach ache turned out to be a fast-moving and lethal cancer in 2016, left no instructions. He left no plans. He left barely anything written down. To understand the inner workings of the region’s largest wholesale bagel manufacturer, we were forced to rely on my mother’s observations, input from our head baker, and barely lucid conversations with Dad in the three horrible days between his diagnosis and his death.
“This is the complete extreme,” says Terry Monroe, a serial entrepreneur and founder of the American Business Brokers & Advisors, about my family’s situation. “I mean, that is so bad. That’s the worst case.”
In the weeks and months that followed, the magnitude of the mess my father left us would threaten both the company and our family. In the end, most of the responsibility to keep the ship afloat would fall to me—an improbable choice forced by necessity.
Nearly three years later, the business and my family are both OK. But other small business owners can learn from the nightmare we endured to get to this point—because, as several experts affirmed to me, all of this was completely avoidable.
“People don’t plan for anything, and everybody has significant life events,” Monroe says. “Then you get blindsided just like you and your family did and it’s awful. And what’s worse is, it can be prevented.”
Why should business owners care about succession planning?
“No one’s going to die, right? Other people have done it, I’m not going to do it, I’m immortal,” says Linda Henman, a Missouri-based external corporate adviser and author of “Landing in the Executive Chair.” “A healthy guy running a company who’s 65 thinks he’s going to live forever and has no plans for retirement. But it’s a very short-sighted and self-absorbed way of looking at your company.”
Face it—a day will come when you’re no longer in charge. Whether it’s due to age or illness, or if you choose to retire or move on to other endeavors, all tenures eventually end.
And there are some grave dangers to not preparing for these events with a succession plan for your business—aka a roadmap for who will take over. Countless families have disintegrated over conflicts brought on by the absence of a plan; neglected businesses can fail as heirs or others are too busy squabbling. In some cases, not having a successor can result in the government seizing or otherwise controlling the business.
My father did have a vague plan: My sister and her husband were to move from New York to Florida and take over after their youngest child left for college. No steps were ever taken beyond idle talk, though.
He didn’t plan better because, like many business owners, my father was too overwhelmed with the tasks of running and growing the business. Bonnie Hagemann, CEO of Kansas City-based Executive Development Associates and author of “Leading With Vision,” agreed time management is a common problem.
“[Business owners] don’t plan for it because it’s a small business and they’re doing the work,” Hagemann says. “They’re usually so busy that they’re not thinking about the leadership aspect of what they do.”
Monroe, who authored “The Art of Business Brokerage,” empathizes but insists it’s a poor excuse. Planning for succession, he asserts, is as fundamental a part of running an enterprise as making payroll, catering to customers, and overseeing manufacturing.
“The things in life that are easy to do are easy not to do,” he says. “It isn’t that hard. People don’t take the time. We’re all guilty of that, but it doesn’t make it OK.”
Learn from my father’s example. Here are the steps experts say you should take to create a successful succession plan.
1. Groom a successor.
The most fundamental part of succession planning is replacing yourself. In small businesses, many of which are family-owned, there is often an expectation that somebody in the family will step up—but that doesn’t mean the kids are ready or willing.
In fact, that disconnect may explain the high failure rate for family-owned businesses. Just 30 percent of family-owned businesses survive into the second generation, and 12 percent make it to the third, according to research from the Family Business Institute.
A little bit of planning can help the odds. Henman suggests that owners identify employees, relatives or not, who show talent and then “enhance their jobs to teach them new skills so they can at least take over part of [the business].”
My father actually did this without realizing it. About two years before he died, he gave a 20 percent ownership stake to our head baker, Rony, to thwart competitors vying to hire him away. Rony took his stake seriously and quietly watched how my father managed the employees, spoke to customers, and contended with unexpected problems. He also lobbied to hire some of his own relatives, which turned the business into a two-family operation—and gave Rony additional motivation to step up on the day-to-day managerial side of the company in my father’s sudden absence.
Experts want owners to be far more deliberative than that. Ideally, you know specifically who you want—be it one of your children, a promising employee, or even someone from another company—and you personally guide them.
The tricky part is, many small business owners can’t afford to spend years engaged in on-the-job training, or to pay the salaries necessary to retain someone with the skills to take over.
“You can’t stack up your talent like firewood and say, ‘Oh, here’s a brilliant person that’s really not in the game, but I’m keeping her over here in case someday we need her,’” Henman says. “For my business, I know who a good successor for me would be, they’re just in another organization. I have that all documented, that this is the person they should try to go after, or someone with similar skills.”
Henman says owners should find headhunters in their vicinity—get a recommendation from another firm or CEO, or try sites like OnlineRecruitersDirectory.com—and “build a relationship with that person so that somebody else knows your company and could go out and find somebody in a short period of time.”
The goal is to avoid chaos.
“The worst case I ever saw was a guy who built a huge real estate empire and he died suddenly in his office,” says John Crossman, CEO of an Orlando-based commercial real estate management firm and author of “Career Killers, Career Builders.” “Within a year, his sons were suing each other over the estate, the partner sold the company, and it’s like the whole company never existed.”
Monroe also offers this warning: “What if you don’t have children? Do you want to give [your business] to the government? Because that’s where it’s going to end up. It’s going to get liquidated and it goes into escrow with the state for seven years, and then the state takes the money. That’s not what you want.”
BOTTOM LINE: Know who you want and start paving their path to succession.
2. Select family members rationally.
My father’s sudden passing—and the fact that I happened to be visiting my parents the week he died—forced me to take immediate control of the business’s finances and rely on Rony to handle most of the operations.
By the time my brother-in-law came along weeks later to take over—as we believed Dad would have wanted—I had come to some conclusions about the business that were significantly different than his.
In the end, my mother and aunt backed me, some terrible things were said, and my brother-in-law and I did not speak for almost a year. Even now, we just don’t discuss it.
This, as Crossman puts it, is “ridiculously common and sad.” While botched successions at large corporations make the news and often result in litigation, Henman says the process at small businesses can be even more challenging: “You’ve got a lot of the family dynamics that are overshadowing the business decisions, and that complicates it.”
Sometimes, she says, the favored family member isn’t actually willing or capable. Henman’s “Hall of Fame worst” was the case of a St. Louis restaurant franchisee who asked her to “take a look at our four sons and tell us which of them can take over.” Her conclusion: None of them had the skills or personality to do it.
“The question I always ask is, ‘If this person were not related to you, would he be working here?’ Probably not? Then don’t hire him to be your successor,” she says.
The owner rejected her advice, and years later, she learned the company had gone bust. “What they had spent their entire lives building went down the drain because they couldn’t accept that none of their sons could run that business,” Henman says.
Hagemann agrees: “Think about the business as its own living organism and think about what it needs to survive. Is my son or daughter the best leader for this? Or would it be better for everyone, including my son or daughter, for someone else to run it and them to have ownership or get a dividend?”
BOTTOM LINE: Act rationally, not emotionally, for everybody’s sake if you want your business and your family to remain intact.
3. Write everything down somewhere.
My father prided himself on his elephantine memory. But that died with him, and not having a repository for important information made my job infinitely more difficult.
I had to reconfigure most of the online passwords, work out details of the special deal he had with one of our suppliers from a handwritten note on a piece of scratch paper, and get a handle on cash flow by reconstructing revenue and expenses based on months of invoices and check stubs.
There are better ways! Monroe says he has all his business passwords and banking information written down in a sealed envelope that’s kept in a safe place. Henman has an encrypted computer file with her business’s sensitive information and says the password to that is written into her will.
Crossman says keeping a running document of every position and its responsibilities is also crucial. “I had a situation where a friend’s father, from his deathbed, asked me to manage his building for him,” Crossman says. “I said yes, I told him I’d figure it out, not to worry about it. But the man was in his 80s. Twenty years earlier, he should have had all that figured out.”
Monroe’s advice: “Have a little talk with yourself. ‘If I get hit my truck today, can anybody take this over?’ And then tell somebody this is who you call. This is the attorney you call. This is the accountant you call.”
BOTTOM LINE: Your knowledge and know-how can only be useful to your successor if you provide it to them.
4. Prepare your employees and customers.
No matter who in my family was going to take over for my father, they would have been a complete stranger to everyone involved in the operation. Few things were as awkward as having to introduce myself to a key customer for the first time because money was due and simultaneously having to explain that Dad had just passed away.
“Stepping into the owner’s shoes is a really difficult situation because, as I tell all my clients, you’re not in the construction business or the food-services business or the financial business—you’re in the relationships business,” Henman says. “All businesses are built on relationships, and the smaller the company, the more they rely on those relationships.”
My father should have given his chosen successor a detailed tour of our bakery and set up meetings with key players. “Introduce that person to your banker, to your lawyer, to your best customers, to your vendors, to everybody,” Henman advises. “Make a list and let your successor start building those relationships. I seldom see this happen, but this is the cleanest and best way to do it.”
Our workers, too, were understandably disconcerted by the death of my father, who many of them genuinely liked. When conflict erupted in the family and it became unclear who was in charge, those jitters grew worse.
Ideally, an owner is able to explain the succession plan to the employees to reassure them that “the new person is not going to kick the door in on the first day and change your software or your vacation policy or something else that employees have an emotional reaction to,” Henman says. “Sometimes you can’t reassure them. Sometimes you don’t know what a new leader will do. But what you’ve got to do is continue to communicate everything that you know and accept that fear will be part of it.”
BOTTOM LINE: Avoid spooking your customers and workers. Communication is key.
5. Revisit your plans regularly.
Hopefully by now you’ve realized you better get going on a succession plan, lest you leave your family and business in the sort of disarray we experienced.
Great! But you’re not done once you’ve picked a successor and stashed critical information somewhere the new leader can get to it in a crunch.
You’ve got to do it again. And again.
Succession planning experts want you to revisit your succession plans as often as possible. Set a calendar reminder on your phone to pull out the document you’ve created once a year and make sure everything about the company still applies. Take your would-be successor for lunch at set intervals to talk about a shared vision for the company and to reaffirm that they’re still interested in and up for the job. It may even mean visiting an attorney periodically.
“A lot of founders have a vision of a legacy,” Crossman says. “If they were asked, ‘Would you like the company to be here 100 years after you’re gone?’ I think they’d all say yes. But that means they have to make plans. Then you have to change them as often as necessary.”
BOTTOM LINE: Times, business conditions, and people change. Your plans must change, too.
My father actually did a lot right. His business today operates like a well-oiled machine because of his foresight and hard work. But we have no doubt that he would have felt terrible about the lurch he left us in and the drama that ensued. If he could do it over, I’m certain he would have followed these recommendations. Other owners should take heed.
