4 Elements that Make a Succession Plan Destined for Success

As you know, I’m a big advocate of succession planning, and have tweeted, posted on my social media accounts, and blogged about this topic here and here. However, I still find that well over 75% of businesses in Detroit have failed to implement a comprehensive succession plan.

That’s why I was excited to talk to Tim Gunn, CFO of the Adamo Group, regarding the succession plan at Adamo. You might recall that John Adamo, President of Adamo Group, died in a construction accident in late 2015. When talking to Tim, I asked how the business not only continued but thrived after Adamo’s sudden death. The first element he attributed the success to was the Buy/Sell Agreement that provided for the orderly transfer of shares to his partner. The next element Tim noted was that more importantly the Buy/Sell Agreement was funded with life insurance so there was adequate liquidity to payoff John’s heirs. The business did not have to pay off John’s estate with its own cash, which would have clearly put undue financial strain on the business.
For most businesses, the implementation of a Buy/Sell Agreement and having a life insurance policy to support it, would be the beginning and end of their plan.
However, I believe there are additional elements of a succession plan that have to be addressed in order to fully ensure the longevity of the company.
This led to the next part of my discussion with Tim where we discussed operational issues related to succession planning:

  • Be Proactive:  The first action Adamo took was to schedule a meeting with the bank to discuss their financial situation, how the business was going to continue, what strategies were in place, and explain why the business would continue to be a profitable and credit-worthy customer of the bank. By being pro-active, they generated a lot of goodwill with the bank.
  • Ensure Clients Have Relationships with the Right People:  Tim also discussed the company’s relationship with customers after John passed away. Tim said many of their customers had relationships with managers or other senior executives so there was not a hiccup in the relationship with the company. This point should not be overemphasized. A business cannot survive the death of its owner if all customer relationships sit solely with the owner. [perfectpullquote align=”full” cite=”” link=”” color=”” class=”” size=””]A business cannot survive the death of its owner if all customer relationships sit solely with the owner.[/perfectpullquote]
  • Create Relationships with Vendors: Vendor relationships were next on the list. Again, Tim said because of its long-standing relationship, vendors actually extended additional terms and consideration to Adamo. While vendors always want customers to sell to, they could have very easily cut off Adamo for fear the company would not continue.
  • Make Yourself Obsolete:  The successful transition would not have been possible had John and his brother not established and groomed key executives throughout the company. It was clear Adamo made a concerted effort to have the company thrive in the owners’ absence. As I’ve always promoted, the most valuable business is the one where the owner and boss are obsolete. [pullquote]the most valuable business is the one where the owner and boss are obsolete. [/pullquote]

Adamo’s experience, unfortunately, is the exception and not the rule. Too often, business owners think that simply having a Buy/Sell Agreement in place (even if it’s often not funded) means their succession plan is in place.
However, true business continuity is mostly about culture, leadership, relationships with vendors and customers, having proper internal controls and policies, and most importantly, grooming the right people to manage the business and giving them the opportunity to learn while the owner is alive to mentor them. These are the elements that truly make a succession plan destined for success.
If you have any questions about succession planning give me a call at 248-455-6500 or email me at [email protected].

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