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Hey everybody and welcome to this week’s edition of The Small Biz Ahead Podcast. My name is Gene Marks and thanks so much for joining me this week. Let’s talk about succession planning, shall we? I mean, it’s a big, big issue for a lot of businesses. The Small Business Administration says that more than half of small business owners are over the age of 50. I think the average age of a typical small business owner is about 55 years old. We’re getting old, right? And a lot of us are thinking about the future and what the future involves. And unfortunately, not enough of us though, are planning for succession. There was a study that came out in 2021 by PWC, PricewaterhouseCoopers called their Family Business Survey. They found that only 34% of businesses in this country, small businesses, had a formal succession plan in place.
And it is a big issue. I mean, think about it. If you’ve got other partners, if you’ve got kids in the business, spouses in the business, whatnot. You can’t just like throw things up in the air and kick the can down the road and hope that things work out in the future. You have to have a plan. It’s a responsibility of yours. It’s a fiduciary responsibility of yours, in my opinion, to make sure that God forbid anything happens to you or me and we’re not around anymore. Generations can still move on. And there is a plan for moving that business forward and you don’t create more fights. So what do you do? How do you create that succession plan? What are some of the things to consider? I talked to quite a few business owners that are in the practice of doing this and some attorneys, and I walked away with just a few big, good pieces of advice that I think both of us, all of us should be considering.
Number one is about involving outsiders to run a company. I realize sometimes we run very small businesses. Bringing in an outsider is a really big deal. We’re used to doing it ourselves. Some of us can’t afford to bring in an outsider, so that’s an issue as well. But what I’ve seen with some of my clients is that they’ve been able to bring in outsiders at the very least to perform functions on a board of directors. So say you’re running your company, you don’t wanna bring in another CEO or another person to run it. You don’t wanna give them equity, but you can form a board of directors where, and you would pay some of these directors, but okay, those directors themselves not only are independent, they’re not shareholders of your company but they have the authority to make certain rules that you and your management team agree to abide by. Some of those rules, may be from those directors to, what’s required by family members to be working in the business or some of the rules to be followed by management as well. But I’ve seen some clients that they go all in, they will have a board of directors, which they’re a part of, but they’ll also bring in outsiders. And those outsiders are very active in the business as well. Again, they get paid to perform that role, but it’s all agreed that we abide…
On what the board decides, which includes these outsiders. Another thing that the board can do with these outsiders is like really determining, like the extent of family members. I have some clients, for example, that have, they have written family employment policies that their outside board creates. And those policies include requiring family members to work outside of the business because they learn things by doing it that way, and they can bring back knowledge to their company. And it’s good for particularly younger family members, future generations to spend some time outside of the company. So a lot of my clients that have good succession plans have good written family employment plans, which addresses nepotism, addresses how family members can progress within a company, keeps their family members completely on par with other employees as well. Also discusses whether or not a family member can work outside of the business.
Another thing that I have found good clients doing with succession plans is involving outside advisors as they put together the succession plan or as they hit any kind of stumbles or problems or issues. Some of my clients have employed people, sometimes I get employed to do it, and sometimes it’s a headache. If you have a good CPA or a good attorney or a good coach who can facilitate and mediate and help family members get through some of these succession planning issues, that itself has also been a very, very powerful thing that good companies do when they put together their succession plan. Also on a succession plan, you can’t not talk about succession plans without talking about like taxes and estate planning. You have to have a will and that will itself, and estate plans have gotta reflect the current intentions of you and other shareholders and your partners.
You should be regularly updating that will, you should have trusts involved so that if you do die, your assets go into that trust. And there are certain rules that the executors of that trust have to follow, particularly when it’s shares of your company. And then you have to consider taxes as well. I mean, some states have different tax laws for inheritance taxes and gift taxes than say the federal government. And all of that has to be addressed as well in a succession plan, particularly in your will and estate, so that your taxes are taken care of as well. The bottom line with the succession plan is it really should be like a formal written governance policy. It’s a policy that the leaders, the founders, the shareholders, the family members, your outside board should be putting it all together and having it all working on as a group so that it reflects the values of your company going forward. Because you as an owner of a company, you’ve got a responsibility for the future of this company even if you’re not around. And that responsibility is not only for your family members, but as well for your employees and…
Their families as well. So you just wanna make sure that you’re all on the same page. As far as future values for the company itself, you’ve got a good written plan in place. You’ve got independent people that are part of, at least your board of directors that are given the authority to make some decisions. You’ve got a family policy in place for family workers. You require people to work outside of the business as well as inside of your business. And obviously you are regularly addressing and reviewing your will and estate plan so that it’s consistent with what your succession plan is for your business. So there’s no arguments to be had going forward. All of this needs to be done now. I know it’s awful and it’s boring and it’s kind of morbid.
But my best clients are are thinking about this ahead. And even though I said at the beginning that, the average age of the small business owner in this country is like 55. If you’re starting up a business, even if you’re 30 years old or 35 years old or whatever, you should still have a good succession plan in place. You gotta think about these things in advance because your business changes over the years. More family members get involved, other parties get involved, things could happen to you as well that you wanna make sure that you are taking into consideration. So all of that needs to be done. Not enough people have succession plans, only a third of business owners have ’em in place. You don’t wanna be one of those, two-thirds of business owners that don’t, cuz you’re just not doing a service for your family going forward into the future.
So those are my thoughts on succession plans. I hope that it is helpful and I hope that you’ll take the steps to put a good succession plan in place for your business. My name is Gene Marks. You have been listening to the Small Biz Ahead Podcast. If you need any more advice or tips or help in running your business, please visit us. We have other podcast episodes there as well at SmallBizAhead.com or SBA.TheHartford.com. Hey, thanks for joining me this week. I hope you found this advice a little bit helpful. I’ll be back again with you soon with some more advice to help you run your business. Take care.
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