Doing Nothing-The Cause of 10 Devastating but Common Small/Family Business Disasters

Doing Nothing-The Cause of 10 Devastating but Common Small/Family Business Disasters

by Fred Leeb, Leeb Partners, LLC

You are not alone.  Just like a large percentage of CEO’s and boards of small/family businesses, you probably have your hands full with the day-to-day critical issues to grow your business.  The last thing you want to do is get mired in business succession problems–the emotional, confusing and complex world of internal business and family relationships that don’t seem to have to be addressed today.  But, you probably have to admit that there never seems to be a good time or enough time to get past the trees to see the forest.  Without an operational succession plan in place and ready, all your hard work eventually could be for nothing.

So, let’s face the reality that you know is coming, possibly sooner than you expect.  Unless you take action now, doing nothing could cause the downfall of everything you (and possibly, your predecessors) have built for decades.  This would be not only from a business point of view but also from a personal relationship point of view (possibly even causing hatred between key managers and/or family members).  Even if the business remains financially successful, an operational succession that is not planned properly could lead to divisiveness and long-lasting harm.  Some of the devastating issues caused by doing nothing are as follows:

 

  1. The best managers may leave the business at any time because of a lack of written career planning, mixed messages and overall uncertainty.  Oral agreements and promises may not be known by your successors or they might just get lost.  This often is due to inadequate employee files, unwritten intentions as to promotions, raises and bonuses and a general lack of communication about human resource issues.  Be aware, however, that the best employees always have the most options elsewhere, are always being sought by other companies and are always investigating other opportunities to get ahead.
  2. Business growth opportunities that would bubble up from the management team, if they knew that they could make an impact on your strategic decision-making, may never be known.  Key managers are likely to have many new ideas that you can’t generate solely on your own.  Unless you push these ideas forward, these growth opportunities may be lost forever along with the valuable time required for the managers to learn to implement their ideas in the real world.  The time is now to evaluate your managers and help them to gradually take on additional responsibilities and authorities under your mentorship.
  3. A person who may not be knowledgeable or capable to be in the leadership position could be chosen as your successor.  This could result from confusion about who you would have recommended as your successor and could lead to passing over the trusted, devoted manager you would have selected.  In addition, this second-best selection could cause a number of the best people to leave in frustration, severely damaging the business and its value.  The decision-makers should know now why you would have selected a specific person to be your successor and know how that person earned the leadership position.
  4. Untrained and untested managers may be forced into leadership positions on an emergency basis.  This may be because nobody has invested the time necessary to educate them to be successful.  In addition, they may not have been allowed to get the necessary on the job seasoning—making the small failures along the way that are necessary to learn to succeed.  Once a business succession must be put into action, training is much more difficult, putting the career of the manager and the entire business at risk.
  5. The business may be in jeopardy due to having to “reinvent the wheel” on an emergency basis if none of the procedures or standards are in writing that have enabled the it to be successful in the past.  Its valuable identity and brand may be lost if others have to determine how it should operate with its board members, vendors, customers, professionals, employees, managers, family members and other key stakeholders.
  6. The opportunity of developing a knowledgeable and diverse board to help in decision-making could be squandered.  A diverse board is often uniquely capable of bringing unbiased perspectives and insights to the table that can be extremely valuable.  The board also is a means of providing important history and continuity from trusted sources that can be tapped by the successors.  The outside board members also create the diversity that brings critical perspectives from other businesses and industries, as well as knowledge about potential pitfalls and the means of success.  In addition, they can help to prevent conflicts of interest, to promote ethical behaviors, and to help obtain needed resources when required.
  7. A business crisis could cause a huge long term loss if a large percentage of the entire family’s wealth and the future earning power of multiple family members are tied directly to the family business.  There is relatively high risk when there is a high concentration of wealth in one relatively illiquid asset (the business) that is subject to unpredictable and rapid market changes.  Losses could affect multiple generations who are working in the business.  If they haven’t worked elsewhere and they lose their jobs, their future earning power may be much lower at other companies.  Just the knowledge of these ripple effects could cause a huge amount of stress, causing you to make desperate decisions if there is an emergency.  The potential advantages of selling a minority ownership interest should be considered.
  8. Your successors could easily choose the wrong option as to whether the business should be sold or not sold if they don’t have your knowledge of the business’ strengths, weaknesses, opportunities and threats.  They also could be paralyzed through disagreements if you do not discuss the options with them in advance.  Once the business is broken up or sold, it will never again be a source of growth, opportunities and jobs for the people most important to you.  On the other hand, if it is not sold when it may be at its peak value, there could be a huge lost opportunity.
  9. The business may be defenseless to potential vulture buyers with low purchase offers because nobody except you knows the true value of the business.  Your successors should know the strategic plans, the intangible assets (i.e., the goodwill, proprietary methods, upcoming work, favorable vendor relationships, favors that could be called in, etc.), how to complete work in progress, who could step up to manage, the incentives that are in place, how to identify and understand key reports and many other factors.  Every day that goes by with a confused management will cause a drop off in customers, desperation and a significantly lower sale price.  Time will be on the side of the purchaser.
  10. The large investment you already have made in your professional advisers (i.e., your accountants, attorneys, bankers, financial consultant, financial adviser, insurance broker, real estate broker, et. al.) may be wasted.  Every time that you have called upon them in the past, they have not only done their job but they also have built up a highly valuable body of knowledge about your most important issues (e.g., your vendor, customer and employee contracts, real estate, tax issues, negotiations, insurance, etc.).  Unless you enable them to build a relationship with your likely successors, they may be quickly replaced and your investment in their knowledge could be lost.  It will be much more expensive if the company has to pay a new group of outside professionals to be educated about the business in crisis mode.

All of the above, and many other issues, require that you invest your time now to avert huge disasters that aren’t necessarily easy to resolve but are preventable or can at least be mitigated.  This process also may require that you hire a highly professional business expert with wide-ranging practical perspectives who can work with you to make the tough choices and provide the unbiased recommendations, solutions and resources that you need and then help to implement the changes you have decided upon.

Call Fred Leeb at Leeb Partners today at 248-514-3262 to begin to discuss how we can be an extremely trustworthy financial business adviser to work with you and your other professionals to achieve all of your long-term goals.

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