While art imitating life doesn’t usually translate into the world of Calgary business, the latest TV season of Succession, about the scripted maneuverings and vicious shrapnel of Logan, Kendall, Roman, Shiv and the rest of the fictitious Waystar RoyCo family, may trigger more mundane but important interest about the critical issue of reallife business succession.
In many ways, and for various contemporary business reasons, succession planning experts are sounding an alarm about avoiding the business disaster of procrastination or no succession planning at all. They candidly but bluntly urge Calgary business owners and executives into action, warning that, in some situations, failing to plan translates into planning to fail.
The no-holds-barred business reality is that making no plan is also a decision. A risky and poor decision, but a decision just the same. And some recent Canadian business trends and figures make the decision even more critical.
- Some 76 per cent of Canada’s business owners plan to exit their business within the next decade, with over $2 trillion worth of business assets potentially changing hands.
- Only one in 10 business owners (9 per cent) have a formal business succession plan in place to ensure a smooth transition.
Trends and specific case stories echo the cause and effect that, without succession planning, a successful business is courting disaster.
The urgency around not planning for succession flags a checklist of weighty risks and consequences:
- Owners failing to realize the full value of their business.
- Alienating potential successors (senior management, family or outsiders).
- Inability to achieve the mission and realize the vision and putting the business at risk.
- Increased difficulty in obtaining longterm financing if lenders perceive inadequate business planning.
- Loss of expertise and knowledge about the business.
- Leadership gaps and loss of continuity and naming an unprepared or unqualified successor who lacks personal drive, commitment, skills, training and education.
- The owner taking a significant tax hit.
- Damaged client and partnership relationships.
- Uncertainty for staff and potential of low morale.
Some succession planning experts go as far as to warn that not having a plan is dangerous, risky and irresponsible. They point out that, especially in today’s business environment, succession planning IS risk management at its most urgent and important.
Of course, the most basic and obvious risk is that the business goes downhill, really fast. In many specific situations, the business has grown partly due to a leader’s experience, drive and ability. Without proper succession planning and strategy, the future success of the business deteriorates, when the leader’s experience, drive and ability are gone.
When the experienced leader goes, the business suffers and triggers lower productivity, lost work, a slump in business and low morale which causes lower quality of work. In many ways, succession planning is a matter of avoiding risks.
Experts suggest that a business’ financial risk increase exponentially without the buffer of a succession plan. The impact of a sudden departure or crisis for a key leadership role or mission-critical position is significant and could cause disruption to the business and financial damage. It is a notorious fact of business life that investors scare easily and often react to a change at the top, by assuming the worst.
Some impact of business disruption includes issues such as suspended initiatives, disrupted third-party/partner relationships, poor financial performance, loss of revenue or shares, and more. There is a lot of uncertainty and turbulence posed by a sudden vacancy/departure of a key position within the organisation.
And no doubt about it. While business growth, revenues and cash flow are key factors, planned or unplanned succession does get personal.
Stats show that most owners rely on the sale of the business as a source of retirement income, and not having a plan can reduce their chances of selling at the price they want. That means lower retirement funds. Obstacles encountered by the owner looking to sell the business may not only be problematic to the business itself, but the well-being of the owner and their family. Failing to plan also puts the employees’ livelihoods in jeopardy, as well as all the other risks.
Deferring or putting succession planning on the back burner is much too common and an easy to do, with the most familiar business excuse that “we’re all way too busy, and there are other pressing priorities.”
The Canadian Federation of Independent Business (CFIB), Canada’s champion of small business (SMBs) with over 97,000 members, is a dynamic advocate of succession planning. Regardless, its recent Business Succession Planning Survey acknowledged that some small business owners do procrastinate.
“Succession planning is a complicated process and, for one in four owners, it’s hard to know where to start,” explains Laure-Anna Bomal, CFIB’s research analyst. “Also, when planning does start, there are other obstacles.”
- 75 per cent of SMB owners will leave their business for retirement, while 22 per cent will leave because of stress or 21 per cent just to step back from their responsibilities as owners.
- 54 per cent says finding a suitable buyer is the most common obstacle to succession planning, followed closely by business valuation and reliance on the owner for day-to-day operations.
“Given the magnitude and complexity of the process, business owners may also be too busy running their business, do not have the time needed and may avoid or postpone any plans.”
The economy and recovering from pandemic and supply chain speedbumps certainly took a toll, particularly on SMBs. It could also be understandable – but risky – reasons for procrastinating succession planning. She points out the undisputed fact that the current value of some businesses is down, and owners may be holding off until their business is profitable again. “Conversely, there are businesses that are more profitable than ever, and owners may also be holding off to extract what they can from their success, before exiting.”
While most consultants and analysists stress the importance and urgency of SMB succession planning, they are reluctant to put all the blame on the leader. Recent stats and surveys illustrate the failure or lack of succession planning as often due to boards and stakeholders allowing it to fall-off their priority or agenda.
There are also other challenges, such as the lack of a structured process, ambiguity of accountability for succession planning, decision-making based on gut-feel over objective data, and other factors.
According to the CFIB survey, and unlike the fictionalized scandals and in-fighting of TV’s Succession family, real families are not such significant speedbumps in real success planning. “Only 11 per cent mentioned that the conflicting business vision of family members was a barrier to succession planning,” Bomal notes. “When business owners are planning, they will reach out to accountants, lawyers, etc.
“The paperwork and contracts associated should protect them from any family sensitivities and alleviate the problems that arise from it. Our survey showed that most, 49 per cent, of owners will exit their business by selling to an unrelated buyer and only 24 per cent will sell to a family member.”
There is expert consensus. Businesses with good succession planning practices perform better financially compared to businesses which have poor succession planning. But, since procrastination is a documented, major risk, developing a solid succession plan also works out to smart risk management.
