Creating Your Business Legacy: Why Succession Planning Matters

By Bryan E. Kelly, CFP®

The ingredients for a thriving family business include passion, vision and sweat. But in order for the family business to endure from one generation to the next, another vital element is necessary: a viable, proactive succession strategy. The future of a family business, including the livelihood of its employees and the preservation of family harmony, often hinge on the seamless transition of leadership, making succession planning a necessity, not an option.

Failing to plan for succession can lead to the failure of the business. This is particularly true for family-run businesses. Research shows that most businesses fail to survive the first generation of owners, let alone make it to the third generation.

The lack of a succession plan often contributes to this failure. With no plan for a transition, there is the potential for a leadership vacuum. The company may face a period of uncertainty and instability when key leaders leave or retire. And the lack of a succession plan could significantly deflate the value of the business.

When should business owners begin planning their succession strategy? Whether the owner is planning to retire next year or in thirty years, succession planning should begin NOW. Early planning allows for a smooth transition, giving successors time to gain the necessary experience and understanding of the business. In addition, early succession planning is a crucial part of a comprehensive risk-management approach. Life is full of surprises. A transition might need to take place sooner than expected due to health issues, a change of plans or an unforeseen tragedy.

At The Kelly Group, we address succession planning in three different contexts. First, as part of our holistic financial planning and wealth management for individuals, we work with business owners and their advisors to help craft a well-constructed succession plan. This is a critical component of a business owner’s retirement, estate and legacy planning that prepares the family for what comes after a retirement or death.

Second, as part of our due-diligence process, we evaluate and monitor our investment strategists’ succession plans. When it comes to the management of mutual funds and ETFs, we place great value on the team concept so that long-term success is not overly reliant on one or two superstars. Instead, we prefer a deep group of managers, analysts and researchers and a plan to train and prepare future managers to replace those who retire.

And then there is our own succession strategy. I have often described with pride the moment my Uncle Bill and I sat around his kitchen table in 1997 planting the seeds of our wealth management and financial planning firm. Our vision was that it would be client-focused, community oriented—and, in the words of the book “Good to Great,” “built to last.” We intend our firm to be here for our clients’ children and grandchildren. And we plan on being a fixture in the community for many generations to come. In fact, we envision The Kelly Group as a “100-year firm.”

In implementing our succession strategy, we follow our own advice. To start with, the owner must be proactive and intentional in creating the plan. And it must be started early enough, even when the retirement of the founding generation is not yet in sight.

For a successful succession strategy, there must be a culture and set of processes that reflect and help implement the vision of the founders. Transparency is another key to a successful succession strategy. Communicating the plan to employees helps manage expectations and reduces uncertainties. It’s important to convey the company’s commitment to internal growth and provide clarity on the criteria for succession.

Perhaps the single most important factor in a successful succession strategy is identifying and developing potential leaders within the organization. At The Kelly Group — even though I intend to be actively involved for many more years — we have already appointed two additional partners. We are using the partnership role for the generational transfer of ownership. Chad Arrington, CFP® and Tom Cusick, CFP® are both excellent advisors, great mentors, dedicated to our client-first culture and proven leaders in our profession and community. They are exemplars of what leadership looks like. I can think of no better pair of leaders to help take The Kelly Group deep into the 21st century.

But a succession strategy is not just about anointing successors. It is primarily about how you conduct your business and lead your life on a day-to-day basis. Together, we as business owners can help create a future in which our firms, families and community can flourish for generations to come. I95 Sponsored Content.