A few years ago, the owner of a thriving trucking company turned the reins over to his sons. Deciding to go it alone, they dismissed a key executive their father had hired to help with the transition. Before long, it was apparent that the next generation wasn’t prepared. The company’s financial position deteriorated, and ultimately the father had to step back into the business. That worked fairly well – until the father died suddenly. The company once again foundered, ending up in Chapter 11.

Stories like this are all too common in family-owned and privately held businesses. Incomplete training of successors and the sudden death of an owner are among the reasons that, according to popular estimates, only about a third of family-owned companies survive to the second generation and only about a third of those make it to the third. Often, owners are eager to cash in handsomely on assets and enterprise value they carefully constructed over decades. But many other companies end unhappily, bringing financial ruin and emotional pain to entire families.

It doesn’t have to be this way. A thoughtful transition plan with plenty of time to execute it will give you an excellent chance of continuing the business – if that’s what you want to do. Succession planning is a time-consuming, stressful and potentially painful process. But the consequences of doing nothing are far worse.

Getting started
For many owners, the most difficult aspect of succession planning is simply the decision to do it. Simply put, owners think they are going to live forever, says Kenneth DeWitt, a partner in DeWitt & Dyer, an accounting and financial planning firm that serves several trucking clients. Succession planning is an admission that you aren’t young forever, and “owners can become paralyzed by the fear.” An even larger issue for some owners is the recognition that the process can stir up some unpleasant emotions among family members – especially those who might be interested in running the company but don’t have the talent or temperament.

There is no universal solution to these barriers, but benchmarks can help. “Typically it’s the big decade birthdays,” DeWitt says. “If you reach age 40 and haven’t started putting in a management structure, then you are behind the curve. If at age 50, you don’t have a succession plan, you are starting to play with fire. If at age 60, you don’t have a plan, you really need to get on the stick.” Properly done, succession planning takes five to 10 years, in part because it’s difficult to train and plan while you also are running the business day to day. “It takes a great deal of time to drain the swamp when you are up to your nostrils in alligators,” DeWitt quips.

Andy Ahern agrees that owners should allocate 10 years – five at a minimum – to the process. “You need a 10-year plan, so if you want to retire at 50, you need to start at 40, says Ahern, founder of Ahern & Associates Ltd., a Phoenix-based management consulting firm that specializes in transportation.

If the realization of how much time succession will take doesn’t get you moving, realize that something will trigger succession in your company. It’s better that it be a birthday than a heart attack.