Succession Planning: Making the Best Use of Your Professional Advisors
Bruce Ball , Partner, BDO Dunwoody LLP
Country Guide
October, 2008
You are ready to begin the business succession process, but you don’t know where to start. You know that there are a number of potential advisors you can turn to for advice, but you’re not sure how you should involve them in the process or who to talk to first. Does this sound like your situation? In the balance of this article, we’ll provide some suggestions on how to best work with your advisors and some key factors for you to consider.
Although the succession process will be discussed in detail in a subsequent article, this process will involve the development and implementation of a number of plans, as part of a master plan to govern your business and your family’s involvement in it into the future. In most succession plans (whether a family member will take over or whether you will sell the business), the following key plans will be needed:
- Setting a plan for dialogue – If several family members and/or key employees will be involved, one of the first things you’ll need is a plan setting out how discussions will take place.
- Management succession plan – How will you ensure that there’s strong management and what process will you use to select the next leader for the business?
- Estate, retirement and financial plan for the current business leader(s) – Included here will be tax planning for the transition of the business, retirement planning for the leaders and dealing with assets at death.
- Crisis plan – What happens in the event of the sudden death or disability of the current leader(s)?
- Strategic business plan – How will you keep your business strategy fresh, focused and flexible in a rapidly changing business environment?
- Shareholder and ownership succession plan – Who will own and control the business in the future? How and when will ownership decisions be made?
With such a wide variety of issues to deal with, you may need to work with your accountant, lawyer, banker, financial advisor and perhaps a farm business advisor.
When deciding on how to make best use of your advisors, there are a number of factors to consider:
- How comfortable are you with the succession planning process? If we look at a major home renovation as an example, do you want to act as your own general contractor for the succession planning project, or will you hire an advisor to fill this role? Given many people haven’t been through the process, many will select a lead advisor to help lead and coordinate the process. Leadership and coordination is needed to ensure you get the best possible advice and avoid duplication of services.
- If an outside advisor helps lead the process, should you expect this person to handle all of the tasks that need to be done? The answer is no. A good professional advisor will know their limitations while being able to provide suggestions on where to turn for advice that is beyond their expertise. So, using advisors who are used to working as part of a team is important. The lead advisor should act as a quarterback – “doing” where the issue is within their expertise and “coordinating” where other advisors will be involved.
- Who is your most trusted advisor? When choosing a lead advisor, specifically consider the trust you have in each advisor, and how well you work with them. Accountants are often chosen as the lead advisor for succession planning since they are the advisor that the business owner has the most experience (and trust) with and they may know your business and your family the best. However, if you have a higher degree of trust in another advisor, they should not be overlooked. In all cases, the lead advisor should have a strong understanding of the succession process.
- Should my primary advisor be a skilled facilitator? There is no right or wrong answer here. Consider the nature and complexity of family issues to be overcome and whether or not you and your family have a clear and harmonious view of the future. Where there are difficult issues, or a lack of consensus or vision, then there will be a greater need for a skilled facilitator during family discussions. Another factor to remember is that an advisor who would be a good quarterback but is lacking in facilitation experience may still be a good choice as the lead advisor, as you can hire a facilitator to help with particularly difficult issues or discussions.
When you engage a lead advisor as part of your succession plan, one thing you’ll both need to remember is that their role may be different than what it has been in the past. Although all professional advisors have a duty to take your specific situation and needs into account, advisors are often asked to take a wide variety of information, and turn it into a concrete proposal or plan.
Things will be different for a lead business succession advisor. Their main responsibility will be to provide a structured process in which you will make the big decisions, and the advisor will ensure any detailed planning work gets done. Although you may ask them for their views on a particular subject, it is generally not their role to develop a detailed succession plan for you in isolation.
Another thing to keep in mind is that both you and your lead advisor may be outside of your comfort zones as the process continues. Many business owners would prefer to deal with the day-to-day operations of their businesses instead of dealing with broad questions such as where will the business be in 10 years or who will be leading it. Likewise, your advisors may be more accustomed to dealing with specific assignments as opposed to leading a process that can last for 2 to 5 years. So, you’ll need to remind each other to take a step back periodically to see where you are in the process and what progress has been made.
Professional advisors can provide valuable assistance during the succession planning process but you also need to plan ahead so you’ll get the best advice and manage costs.
