--- url: 'https://www.fmjlaw.com/manufacturings-five-takeaways-succession-planning/' title: 'Executive Insights: Head of Manufacturing’s Five Takeaways from Succession Planning' author: name: Georgie Stocks url: 'https://www.fmjlaw.com/author/gstocks/' date: '2021-06-24T15:08:00+00:00' modified: '2021-08-10T16:12:55+00:00' type: post categories: - Article - Thought Leadership image: 'https://www.fmjlaw.com/wp-content/uploads/2021/07/AdobeStock_303250332.jpeg' published: true --- # Executive Insights: Head of Manufacturing’s Five Takeaways from Succession Planning *The below article was written by [Jim Seifert](https://www.fmjlaw.com/professional/james-j-seifert/), head of our [Manufacturing](https://www.fmjlaw.com/practice-area/manufacturing/) practice group.* Earlier this month, I was joined by my colleagues [Bob Fafinski](https://www.fmjlaw.com/professional/robert-r-fafinski-jr/) (CEO and [Corporate](https://www.fmjlaw.com/practice-area/general-corporate-business/) Shareholder at FMJ) and [David Ness](https://www.fmjlaw.com/professional/david-m-ness/) (head of FMJ’s [Trusts & Estates](https://www.fmjlaw.com/practice-area/trusts-estates/) group) to discuss the topic of business succession planning during a webinar. We explored various topics including generational business succession in family businesses, how to identify appropriate advisors, typical succession planning scenarios, components needed to succeed at succession planning, and more. If you are planning for the future of your business, below are my five takeaways from this conversation. ## Ask the question: do you want to pass on the business? Or consider the question, “does the next generation really want the business?” The answer to these questions might surprise you, and even upset you. But it is important to really consider if the next generation really has the temperament for a high risk, high reward business scenario. Oftentimes, the answer to the above question is “I have no idea.” If you really have no idea, consider the following to help with this determination: - Meet with investment bankers or business brokers to discuss your interest in selling your business and potentially determine the value of your business - Examine your advisor base and expand it with business peer groups or create a Board of Directors to assist with large decisions like this - Identify governance experts to brainstorm how you would govern your business if you pass it along - Identify family business advisors that exclusively work with family businesses to figure out how to navigate the unique challenges of family businesses ## Estate planning is key regardless of your answer to the above question. For many business owners, their greatest asset is their business. Comprehensive estate planning can thus be extremely valuable for business owners as they look to work less, pass on the business, sell the business, or fully retire. The estate plan should also address considerations such as avoiding probate and incapacity of the owner of the business. Probate can be avoided by using a revocable living trust which serves as a written agreement that determines how a person’s property, in this case, their business, is to be managed and distributed during lifetime and upon death. The estate plan should coincide with the corporate documents related to incapacity planning and who has authority over the business and business accounts when an owner is incapacitated. If you plan to sell your business, it is important to update your estate plan accordingly and consider things like taxation and liquidity. ## Succession planning fails for the reasons you might think. 70% of family businesses fail or are sold before the second generation (G2) takes over and only 10% make it to the third generation (G3). G2-run businesses have a 60% failure rate and G3-run businesses have a 90% failure rate. Only 3% of family businesses make it to the fourth generation. Those statistics might seem rather staggering, but the reasons these businesses fail are for all of the reasons you might think: lack of drive or passion, lack of communication, unmotivated family members, entitlement, the owner is not realistic about the offspring’s capabilities, the offspring cannot live up to the previous generation, employee cynicism toward the new generation, lack of knowledge of business and relationships with key constituents, different opinions regarding material possessions and wealth, and lack of structure for success to happen. If you are hoping to pass on your business, it is important to be aware of these reasons for failure and take a look at whether any of those scenarios are developing within your business. ## Succession planning also succeeds for the reasons you might think. And just like failure, successful succession planning happens for the reasons you might think. A shared value system exists among the various generations. There are strong interpersonal relationships. The owners and successors have open and honest communication and have a shared vision for the future. Similarly, objective standards are developed for employing family members and measuring their performance. Proper systems are put in place to govern Shareholder relationships with the business and with each other, such as Shareholder rights and authority, Board rights and authority, Officer rights and authority, and provisions for family and non-family Board members. These governance tools are used as mechanisms to keep control within the family and incentivize those not belonging to the family. Finally, owners succeed at passing on their business because they share the same leadership principles as their successors and they identify, educate, mentor, and train these family members for key roles early on in the process. They also allow for non-family members to work as executives to assist in running the business. ## The final formula for success is… - Ensure the succession plan is dynamic and can evolve - Business owner or owners implement valuation methods - Business continuity planning occurs - Tax strategy/estate planning occurs - Outside advisors are utilized to challenge and assist in decisions - All generations come into the succession planning process with open-minded attitudes - The plan is frequently revisited to ensure some of the tell-tale signs of failure have not developed and the business is still on the path to success If you are interested in learning more about business succession planning, a replay of our webinar and a PDF version of the slides can be found [here](https://www.fmjlaw.com/succession-planning-businesses-webinar/). ***If you have questions about business succession planning, our [Manufacturing](https://www.fmjlaw.com/practice-area/manufacturing/) practice group is here to help. Please contact me, [Jim Seifert](https://www.fmjlaw.com/professional/james-j-seifert/) (Head of the Manufacturing Practice Group), at [james.seifert@fmjlaw.com](mailto:james.seifert@fmjlaw.com), [Bob Fafinski](https://www.fmjlaw.com/professional/robert-r-fafinski-jr/) (Shareholder and CEO) at [robert.fafinski@fmjlaw.com](mailto:robert.fafinski@fmjlaw.com), or [David Ness](https://www.fmjlaw.com/professional/david-m-ness/) (Shareholder and head of the [Trusts & Estates](https://www.fmjlaw.com/practice-area/trusts-estates/) practice group) at [david.ness@fmjlaw.com](mailto:david.ness@fmjlaw.com).*** [](https://www.addtoany.com/add_to/facebook?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fmanufacturings-five-takeaways-succession-planning%2F&linkname=Executive%20Insights%3A%20Head%20of%20Manufacturing%E2%80%99s%20Five%20Takeaways%20from%20Succession%20Planning)[](https://www.addtoany.com/add_to/twitter?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fmanufacturings-five-takeaways-succession-planning%2F&linkname=Executive%20Insights%3A%20Head%20of%20Manufacturing%E2%80%99s%20Five%20Takeaways%20from%20Succession%20Planning)[](https://www.addtoany.com/add_to/email?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fmanufacturings-five-takeaways-succession-planning%2F&linkname=Executive%20Insights%3A%20Head%20of%20Manufacturing%E2%80%99s%20Five%20Takeaways%20from%20Succession%20Planning)[](https://www.addtoany.com/add_to/linkedin?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fmanufacturings-five-takeaways-succession-planning%2F&linkname=Executive%20Insights%3A%20Head%20of%20Manufacturing%E2%80%99s%20Five%20Takeaways%20from%20Succession%20Planning)