Let’s approach death from a personal perspective first. For example, you own a business or a percentage of a business. The company is experiencing unprecedented growth, cash flow is positive, new opportunities are being offered. You continue to fund and operate new businesses with a team of people you’ve partnered with. Expansion plans are underway… then your unexpected death happens.
A strong willed entrepreneur takes advantage of an opportunity, builds the business to success then dies leaving the family totally unprepared to continue the business. The business gets sold and the family legacy dies with the founder. This is an oft repeated refrain that I encounter in my family governance work. And based on research, events like death and incapacity can trigger an avalanche of problems for the surviving family members and the business. Founders must make sure all their bases are covered which includes death planning. It may not be the most glamorous of decisions, but some would argue it’s one of the most important.
The formal term for death planning as a business owner is succession planning. Succession plans can evolve over time to fit the changing needs of the family or the business or both. Even though it is tough to plan ahead to the day when you are no longer running the business you founded, it can be exciting and rewarding to know that your creation will live on and prosper under the guidance of a trusted family member. Equally rewarding is knowing that you have provided for your family. While it is too late to work on a succession plan after the death of a founder, it is never too early to plan, even if you have no successor or just started your business or your kids are too young to even work yet.
Business leaders have a few choices to pick from. They can either decide to sell the business and give employees/partners/family members equity, or they name a successor. Selling your shares takes the business out of your hands without making it a burden on someone else. Naming a successor gives someone a chance to take up your legacy and continue moving the company forward based on your vision. Successors are rarely chosen among credentialed senior level professionals. Most founders handpicked family members who are ready to take up the responsibility. But the downside is this: business owners are notoriously poor at planning for the future of their businesses. They literally act as if they will never die even when they are in their 60’s, 70’s or 80’s. As a result, most family firms don’t live beyond the first generation.
Every business in the world has at least one thing in common: it needs someone in charge in order to succeed. In most cases, businesses start via a sole proprietorship route – a one-man show managing all aspects of the business. As the business gains traction, the founder employs a team of leaders, mindfully deciding the next steps which can affect thousands of people.
But what happens if one of the leaders dies? Yes, I agree that it’s a grim scenario to think about, but it has to be addressed at some point. The quicker you get your succession planning in order as a business owner, the better, and if you’re an employee, you better hope your company has one./WDJ