After You: Succession Planning for Small Businesses
By Gary Fievez and Lunell Haught
What would happen to your business if you
didn’t show up to work ever again? Taking time to plan
for when a serious event might occur, instead of reacting
after it happens, makes the difference in whether your business
is able to recover or not.
Few founders of family-owned businesses think about the future
until it’s too late. Over 80 percent of all U.S. businesses
are family-owned. More than 65 percent never survive beyond
the founding generation. Why do successful businesses just
stop? The same reason good cars just stop – no plan for replacement
If there had been room for one more commandment on the
stone tablets perhaps it would have read, “Thou shall not jive
thyself.” Realistically, we have time for what we want to have
time for. We may not want to think of our mortality, but we may
want to think about how our work will be carried on.
Regardless of which square you occupy on the organization
chart, the inevitable question of ‘what next’ should be on your
mind. Whether a catastrophe or a warm island is the motive for
your exit from work, attention to a few essential questions can
mean the difference between crash and continuation.
Whether you are an owner or a key executive, succession
planning will impact you. The point of succession planning is to
give you the option of moving on without damaging the organization.
It requires you to ask yourself two questions: “Can we
attract and retain top talent? And what do I want next?”
Moving on Questions
- Should your company
reorganize based on new
initiatives when you leave?
- What are the critical
elements and procedures of
- How and to whom can
these elements and procedures
- What type of manager
is needed next?
- Would a self-directed
team make more sense?
- What personal financial arrangements should
Once you have an idea for
these two threshold questions,
the Moving On questions
(right box) are
the next step in working on
your succession plan.
Owners have more complex
managers. Particularly with
a decision must be made
about the owner’s replacement
or if a sale or merger
makes more sense. A succession
plan helps ensure
the value of a business is
retained when a leadership
transition occurs, whether
the result of an accident or
The best friend of succession
planning is time. Time
to work with your advisers.
Time to personalize your
plan. Time to nurture the
next generation of leadership,
and time to slowly and
methodically implement the
sequence of events required
for a seamless transition.
Change is difficult, but a
plan helps provide a guide
and comfort in uncharted
You will probably not create
many succession plans
in your career. Therefore,
relying on the help of professionals
will be beneficial
and save you the time you
thought you didn’t have to
complete a plan. We interviewed
three companies to
show examples of succession
Sonderen Packaging consolidated ownership of the family
business through a process of buying out non-participating
family members. For Mark Sonderen, keeping a controlling
interest is a key feature of his plan. He has structured the
organization to allow family members to decide if they’re interested
in being owner/managers. After making challenging
decisions based on the needs of the business, a serious fire at
the Sonderen Packaging plant gave Mark the option of deciding
whether or not to rebuild it. He credits his customers, suppliers,
employees and competitors for the fast comeback into the
market . Especially after the unthinkable happened, he says, “I
think about the ‘what ifs’ all the time – that’s my job.”
Like most successful owners, he offers the option, but not
the expectation, for the Sonderen family’s next generation to
decide if they want to go into the family business. The business planning has been done, using the expertise of
consultants, lawyers and accountants. But it’s up to Mark and his
managers to help groom the next generation of leadership.
His style, although apparently informal, is focused on preparation. “Be involved,” he advises, and make sure they work in “operating, strategic management meetings, visiting customers, trade associations and customer service, the hot seat
and a great place to learn the whole operation.” Family members are aware they may be perceived as “special” and
consciously work to make sure that isn’t a problem.
According to Mark, grooming new leaders requires identifying
and using their strongest attributes, ensuring they have
necessary experiences based on a realistic checklist, and
examining those experiences with them. His plan for grooming
successors includes having them fill many internal roles, participating
in trade associations, a new generation leaders group
and possibly an Executive MBA. These activities develop mature
judgment that employees and customers can rely on.
Chipman Moving and Storage
Professionals for Your Succession Planning Team:
EACH HAS A UNIQUE PERSPECTIVE AND HELPS
CREATE THE MOSAIC OF YOUR SUCCESSION PLAN.
SELECT THE ONES NEEDED FOR YOUR SITUATION.
ATTORNEY - acts with your CPA or EA to plan
tax consequences of your plan, in addition to
writing your will. Legal Counsel can provide
help with Employee Owned Stock Options
(ESOP) as a way to continue your business
and take care of employees. You should at
least have a buy-sell agreement if you have a
partner, ensuring you don’t end up with your
partner’s spouse as your new partner.
BUSINESS/MANAGEMENT CONSULTANT - coordinates
components of the plan and analyzes
scenarios to help you decide on a strategy.
Look for someone who’s experienced,
has credentials and is affiliated with a
professional association with definite
standards and ethics.
INSURANCE PROFESSIONAL - helps you consider
both Life and Disability insurance plans,
which will provide funds to pay off
mortgages, buy-sell agreements and hire key
replacements. Also, pay attention to Casualty
and Overhead protection to care for business
REAL ESTATE AGENT AND/OR APPRAISER - provides
advice if your company owns or leases
TAX /ACCOUNTING PROFESSIONAL (CPA OR EA) - helps
consider consequences of gifts, inheritance,
and sales or mergers.
CERTIFIED FINANCIAL PLANNER (CFP) - coordinates
attorney and tax professional input to
fit your personal financial plan into your
BANKER - provides short and long-term
methods to ensure cash flow and other
PSYCHOLOGIST OR COACH - helps clarify what you
really want to do and how it may impact you,
your family and your employees.
BUSINESS VALUATION EXPERT - helps if the
valuation of your business is tied to your
planning process. If your intent is to
transfer the business to a family member,
for example, there may be different
considerations than a sale to a competitor or
“Now in the second generation of family ownership,
with a third being
groomed for the future,
this is the only business
the family has known, and
the love for it runs deep,” says Linda Burgin, owner
of Chipman Moving and
Storage in Spokane. Her
succession to the president’s spot was an event,
rather than a transition.
Her background growing
up on a ranch and watching
her dad run the moving
business was her preparation to take over the business when her husband,
who had purchased it from
her father, died suddenly.
Although not involved with the business at that time, she took the helm
with the encouragement of her mother, a friend and a helpful employee.
She acknowledges, “I was inspired every day to make money [because of
the responsibility to her employees and customers] .”Burgin’s real feeling
of success came when her company received some of the most prestigious awards in her industry, in addition to Spokane’s Agora Award.
The value of a hands-on approach – meeting with employees and customers – is a theme running through Burgin’s and other owner’s recommendations. Deep knowledge of how the business works, coupled with an idea
of what needs to be done and how to do it is essential . If anything, overcommunicating is preferable to under-communicating. Studies reveal that
owners typically have a plan in mind, but those who will be impacted by
that plan don’t know as much about it as they would like. Physical lists
and documents, reviewed periodically, provide structure and comfort to
Of course, employees and customers are basic to growth, which has
been at more than 20 percent per year for Chipman Moving and Storage
for the past several years. Like other savvy owners, Burgin has relied on
her special advisers, banker, financial planner, accountant and estate lawyer.
She credits her banker as being the only one who had confidence in
the company’s growth and helped her arrange financing to accommodate
expansion. In working with advisers to craft her succession plan, she is
particularly conscious about the ramifications of having one child in the
business and one child not, and she wants to ensure fair treatment for
both the business and her family.
Operations Manager Jeff Burgin worked for a similar moving company
(or agent) in Pennsylvania at the beginning of his career that allowed
him to improve his leadership skills. Once he came to work for the family
business, he was prepared to fill various roles and increase his involvement
in other aspects of business management. He’s also been involved
in industry associations, and Chipman Moving & Storage has taken full
advantage of the Profit Enhancement Group, an independent organization
of moving company executives. Using a prescribed format, members periodically critique themselves, as well as their peers. The last question in
the critique asks, “What is the succession plan?”
Corner Booth Productions, Inc.
This privately owned business has enlisted var ious advisers to assist in the
successful launch of their five-year-old
venture. Privately owned businesses
have much in common with family owned
businesses. Forman and Swoboda,
co-owners of Corner Booth Productions, agree. “We would not be where
we are today without our team of advisers,” they say. Their strategy of “listening
and follow through” is paying great
dividends. Corner Booth is in the midst
of developing their succession plan.
A business consultant acts as the hub
of the planning wheel and meets with
each adviser and acts as an interpreter
to the business owners. Corner Booth
lists their banker as one of their prime
assets in business and planning to ensure
funding of the company’s operations. Their bank is a “preferred” SBA
(Small Business Association) lender that
provides them direct contact with the
decision-makers for their line of credit
and their term loan utilized for growth
and operating capital .
How to Get Started
For preparing to meet with your advisors
- Five years of personal and
business tax returns.
- Personal and business financial
statements (most current).
- Legal documents, such as (but
not limited to):
- Employee agreements
- Buy-sell agreements
- Customer contracts
- All insurance policies
- Patent agreements
- Option agreements
- Retirement Plan
- Trust Documents
- Health Care Directive
- Power of Attorney
- Most current business plan.
- Formalize the “gut dump” into
- Identify worthy successors.
- List, in detail, who your
competition is and why you
view them as such.
- Draft an emergency survival
plan for immediate review.
- Commit to follow up and follow
through. Remember: implement
now, perfect later.
- BONUS: Form a board of
directors. A competent board
of directors is one of the most
successful tools of a seamless
transition and continuity of
Ideally, five to ten years is needed to execute a succession
plan of a family-owned business. Adopt the theme, “Implement now; perfect later.” Sufficient planning time
allows you to test potential successors in various roles
and evaluate their maturity, commitment and leadership
talent. There is no such thing as a perfect plan, so make
it a work in progress.
Steps for creating your succession plan blueprint:
- Step away from the daily routine and “tyranny of the
urgent” in order to put your thoughts in writing. (A
common reference for this step is “The Gut Dump.”)
- Ask yourself: Do I want to have more time off sooner
- Identify what you want to accomplish over the next
- How much money do you need to realize personal
goals and allow you to back away from your business
part time or forever?
- Establish your team of advisers. Meet with them individually
or collectively. Your advisers will allow you
to gather the appropriate information in order to consider
options and make the best decisions.
- Discuss the long-term stability of your business with
your executive team or trusted managers. Gain their
perspective and interest in the future of your company.
The most successful plans are prepared in collaboration
with owners, advisers and successors. This joint
process allows you to identify your potential successor’s
goals and ideas.
- Create clearly-written job descriptions of all executive
duties. Start with yours and work through the rest.
This is critical for a company’s ongoing operations
and services to its clients.
- Strategize your organization’s short-range and longrange
program and project goals. This should include
funding requirements and resources. Include a directive,
a communication that clearly outlines your
message of transition to employees, customers and
the community you serve. Use your responses to the “Moving On” questions to help you.
- Create a timeline with key dates for critical components
of your plan. For example, if you are grooming
a family member to assume leadership of your company,
a timeline may look like this: For five years after
graduation, he or she works outside of the family
business to gain job experience and confidence. Then
for the next five years, he or she works in the company
in various departments to learn your business from
the ground up. If time allows, use the next ten years
to groom this person for leadership. Be realistic in
expectations and communications. As you teach and
groom, make no commitments to an eventual leadership
position. The position must be earned, not given.
This advice is good for non-relatives as well.
- Review your succession plan and update it annually. A
good trigger date each year is your birthday for business
planning and your anniversary (if you are married)
for your personal/family planning.
Based on what we know about succession, it’s better
to have a plan than an event. If you don’t decide in time,
time will make the decision for you.
© Gary Fievez and Lunell Haught