Plan for the Worst, Hope for the Best
I spent a few hours this week at a conference on family law, hosted by a law firm, and catering to accountants and financial advisors. The subject of the conference, which takes place annually, was succession planning, something that people don’t really want to talk about until it’s too late (and sometimes not even then).
A point raised by one of the presenters focused on why – that is, with people purchasing life insurance to protect their family in case the worst happens, and yet do little or nothing to protect their businesses. At first it may seem like perhaps they don’t care what happens, but usually this is not the case. Where family members are involved in the business, there is often the expectation that the business will remain in the family.
The psychology of what people go through when not planning for succession is quite interesting, as it often raises a variety of questions to reflect on. However, the focus of this article is not family-specific, but rather, businesses as a whole.
In any business, but especially small businesses, there is frequently a high density of knowledge residing in a very limited number of individuals. This has an inherent risk, as there is no assurance that the person with the critical knowledge will always be around, nor that they will have time to train their successor (imagine a car accident). To alleviate this risk, it is absolutely critical that businesses plan for this dreaded scenario.
In fact, this is no different than disaster planning, something larger businesses tend to plan for, though some do a better job of this than others. It’s merely another form of disaster planning.
In planning for this eventuality, the idea is to ensure that critical knowledge for the business has been recorded somewhere accessible in case it should ever be needed and the keeper of that information not be available for any reason. This can be done, ideally, with cross-training, which ensures that the information is disseminated in such a way as to be understandable to the people who would need that information. Alternatively, with confidential information, it can be placed under trust with a lawyer or a bank vault, only to be accessed under certain conditions.
That’s not to say every minute needs to be filled with dread that someone may be hit by a bus that particular morning. However, when no plans are made for such a scenario, should disaster ever strike, the business would have no one but itself to blame for its lack of foresight. Unfortunately, such lack of foresight can lead to the demise of the business, and as such, the risk should be managed in a timely manner.