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Succession planning key to keep business humming

Most businesses do not have one, which, experts say, is a mistake.

By Dian Vujovich
Special to the Daily News

Walk down Worth Avenue and pop into its many vias, or along Royal Poinciana Way or County Road, and you'll pass dozens upon dozens of privately owned shops and not-so-small businesses.

Whether the shop is a one-person operation, such as Sherry Frankel's Melangerie in Via Amore or employs hundreds as The Breakers does, thinking about the future of any established business is as important as running it day-to-day.

Preparing for a future in which that business continues to exist is where succession planning comes in.

And although business owners need to have a plan, few actually do. One recent CNBC online survey found 69 percent of small business owners did not have a succession plan. (According to the Small Business Administration, a small business is one with 500 or fewer employees.)

In addition, research conducted by U.S. Trust found that only "34 percent of baby boomers and 44 percent of business owners over the age of 68 did have succession plans in place to ensure the continuity of their business," according to Holly Swan, a U.S. Trust Wealth Strategist.

It's clear that succession planning isn't something every business owner is dying to do. Handing the reigns over to someone else doesn't necessarily come naturally -- or easily -- to those who have built a successful business from the ground up.

"Control is the biggest issue owners face when thinking about a succession plan, " said Richard Comiter, a tax lawyer specializing in wealth transfer and succession planning at Comiter, Singer, Baseman & Braun LLP.

Comiter said before a plan is created, business owners have to ask such questions as:

  • At what point are they ready to cede control of their business? If they are passing the baton to their children, are the children interested, qualified and capable of running the business? If the succession plan includes those outside of the family, is the person they've chosen the right one and is he or she qualified?
  • How will assets be divided? In family-run businesses, it's not unusual for the business enterprise to make up the family's largest asset. Divvying that asset into slices of who gets what, when, where and why can be challenging in the best organizations.

Write it down

Although succession planning has many faces, the most common plan is not having a plan at all.

Marley Herring, proprietor of Marley's Palm Beach Collection, has not yet formalized a succession plan for her boutique clothing business. She's uncertain about who she'd like to see run the business in the future.

Judy Testa, one of the third generation of Testas, said the succession plan that's in place is the same one that's always existed.

"There has never been a written plan for the restaurant. It's been passed down from generation to generation right along with the assets, debts and mortgages all included. And now the fourth generation of Testas are working there," she said.

Robert Harvey's two adult children are working with him at Harvey Capital Management. Alexander Harvey is president and Sophia Burnichon is executive vice president. Both have master's degrees and had experience in the financial arena outside of Florida before joining their father's business.

"It was their choice to come work with me," said Robert Harvey, who is the firm's chairman and chief executive officer. "My deal was: Go do what you want to do. And they both ended up in the investment business working at different firms for about 10 years before returning to Palm Beach."

Now that his children have worked at the firm for more than five years, he anticipates the transition will be an easy one when he decides to retire.

On the other hand, when Frankel considers who's best-suited to run Melangerie, the choice is simple: Dash, her standard poodle.

"He's come to work with me every day since he was 11 weeks old, is well known, courteous, is the perfect sales associate and knows the business. So, he is the logical choice. But he'd certainly need some supervision," said Frankel, who, has no succession plan in place.

But her pooch plan does make a good point: Every succession plan needs supervision, annually and on an ongoing basis.

And the plan isn't done during one meeting with your attorney or CPA but is part of a process that evolves as situations and times change, Comiter said.

Success rates and succession plans

Studies indicate that more than one-half of small business owners with a formal succession plan hope to transfer their business to a family member and 23 percent to a non-family member; 11 percent plan to dissolve the business.

And according to the Small Business Administration, of the 90 percent of closely held and family-owned businesses, only 30 percent of them will succeed into the next generation and 15 percent will survive into the third generation.

Professionals will tell you that having a plan in place does a number of things, particularly related to personnel and timing.

Beth Walton, CEO of the Palm Beach United Way, created a succession plan for that nonprofit organization in 2012 that is reviewed every year and presented to the board annually.

"The most important reason for a nonprofit to have a succession plan in place is that staff are typically relied upon to carry out the mission, provide services and meet their organization's goals," Walton said. "So we need to think about what would happen to those services or our ability to fulfill our mission when staff members change."

Making sure key people are in place now and into the future also plays a big part in The Breakers' succession plans.

"With a very solid executive leadership group of senior team members, ... succession planning has not been a focal point for senior leadership, but career path planning under the realm of succession planning," said Paul Leone, president of The Breakers Palm Beach. He added that this focus on developing leaders is vital to the organization.

As for timing, because waiting until a business is mature and financially successful can complicate matters, Swan suggests: "The sooner you start planning the better."

Comiter agrees: "After the business starts growing and you can see that the business is going to be successful, that's when you really need to start to think about the future."

Swan agreed: "For any type of business, the sooner you start, the better."

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