Philpot’s BottomLineTips: Business succession

Carolyn Philpot is a founding member of Beall Barclay Wealth Management. Philpot graduated from the University of the Ozarks with a bachelor’s degree in accounting. She also attended Denver-based The College for Financial Planning where she attained her certified financial planner designation. She has been a practicing Certified Financial Planner for more than 20 years.

When starting a business, the owner may never consider the fact they are actually “giving birth.”

The motivation to start a business varies from person to person. Some people start a business to create wealth for themselves and their family, while others may simply have a desire to follow their passion and want to make that passion their life work.

Others may simply not want to work for someone else and maintain a sense of being independent. Regardless of the reason, the entrepreneur rarely realizes they are creating another extension of themselves. I have often heard the founding member of a business state that business is “their baby.”

The start up of a business, just like becoming a parent, requires many long hours.  There are usually a few, if not several, sleepless nights as the owner tosses and turns trying to figure out how to keep the doors open long enough to see their dream become a reality. A business start up also requires a delicate balance between a steel hand to guide the business in the right direction while balancing that talent with a gentle touch to foster relationships with employees and business relationships. A good leader realizes that employees are the most important asset to the business.

Failures along the growth path are sure to happen, and those failures often lead to enlightenment and a better business. As the company grows, more employees are hired. Many of those employees become a part of the family and the worry often changes from keeping the doors open and the lights turned on to worrying about the people who depend on the company to feed, clothe and emotionally provide for their family.

Employees who begin early in the business cycle can and often do become a physical and emotional support for the business owner. These employees are considered key employees, people the company need to maintain the momentum of the growth and values of the company.

As time marches on, the days are filled with more tasks to do than time to do them, and the owner often finds that with limited time and multiple challenges, the business lacks an heir. If the owner has children, they are often considered to be the potential heir or heirs.

This assumption is often a very flawed thought of how the business will survive and thrive going forward, and the owner may not spend additional time evaluating the possibility of others to take over the management of the company. Often, very little thought is given to the succession on the company, and how that will take place. Not every sibling wants to be responsible for another sibling; therefore it is just as common that a son or daughter may not want to be responsible for a business that a parent created.

Even if one or more children come into the business, their values are often not in alignment with the value of the founder. Even siblings who work in the family business often have opposing views or misalignment of business values. Also, the values of the family can come into conflict with the values of the business. These issues are usually not noticed until the second or third generation assumes the management of the company.

Conflicts often arise between long-standing employees who have earned the respect of the original owner and any child of the owner who may not view the employee the same. In fact, the family member coming into the business as a successor may not deem the services of that particular employee, or a group of well-trained employees as necessary. Power struggles may develop between newer family members and the people who have been instrumental to the success of the company to that point.

The point of this article is not to imply that family members are not suited for inheriting a family owned business. Rather the point is that many times very little thought is given to the personality of other family members and parents who form the business, and children are not necessarily the obvious heir to the business. Parents can feel guilty that the business will not go to the children, convincing themselves it is the right of the children to inherit the business.

It pays to plan early for business succession, and to map out alternative routes an owner may take to hand off “their baby” to a person or persons worthy to take over the management aspects of the business; someone who they feel will continue to nourish the values established in the beginning, and has the potential to grow the business into the vision which has been set forth.

Not only is the hand off of the business emotionally important, it is vital to the financial success of the owner and others who may be dependent on the continued success of the business.

Not only do I speak from training and experience in the area of business succession, but also with the passion and feelings of a business owner who is walking down this very path. You see, Beall Barclay Wealth Management was the dream of a few, and now has an extended immediate family, but it was and always will be “my baby.”

Feedback

Carolyn Philpot can be reached at [email protected]

Required regulatory note: Securities offered by 1st Global Capital Corp. Member FINRA, SIPC. Investment advisory services offered through 1st Global Advisors Inc.