Create a Business Succession Portfolio for Tomorrow

Create a Business Succession Portfolio for Tomorrow

Chia-Li Chien | Jan. 22, 2015

It provides an economic value measurement for today.

During a recent business trip to Washington DC, when the east coast got hit with a winter storm, I was in the middle of it. The first snow of the year in the area, it dumped about 2 inches during peak commute hours. The road was not plowed in time to accommodate the high volume of rush hour traffic. Many commuters got stuck on the road, very unhappy with the average 2.5 hours delay in getting in to the office. (Of course, the kids were happy campers because school was closed.)

In became apparent that the problem was not the snow, because we can probably all agree that 2 inches is not that much. The problem was that the municipality did not handle the logistics and tactics well, despite their own forecast. They put themselves in reactive mode, faced with the situation of having to handle a situation they had created—not to mention the many complaints from grumpy commuters caught in the gridlock.

Approximately 10% of Family Owned Businesses (FOB) are transferred to a third generation, according to Le Breton-Miller (2004) and Harter (2008a). Most business owners’ number one priority is, historically, growth in top line and bottom line, whatever the business. (Top line means sales and bottom line means net profit.)

Why in the world would anyone want to devote time to succession planning?

Let’s assume a business has the following conditions:

  1. It’s in a mature stage
  2. Topline and bottom line are the top priorities of the business
  3. Founder-owner-manager (FOM) is the first generation in the business
  4. FOM has family members in business, and,
  5. It has a viable business model for the next 5-10 years and is continuously competitive in the industry with or without FOM in place.

Let’s further assume that a Succession Portfolio (SP) has 3 programs:

  • Employee Succession Program (EE-Suc)
  • Customer-Driven Succession Program (CRM-Suc)
  • Investor Succession Program (EQ-Suc)

Each program has separate projects to address specific areas.

The majority of the research focuses on EE-Suc, according to Le Breton-Miller (2004). The need for a properly structured Succession Portfolio (SP) is for the most part identified as economic value measurement. Harter (2008a) cited that more than 50% of most owners’ net worth is in business equity. The continuous success of the business depends on how successfully the SP is executed and the flexibility and adaptability of each program. As when the 2-inch snow shut down the nation’s capital, even a mediocre SP will threaten a business’s future as well as an owner’s ability to retire. And, it can throw the business into a spin—like a commuter on a slick road in D.C!

The empirical study from Kansal (2012) indicated that lack of integration of SP into retirement planning keeps owners from seeking help in structuring a solid SP.

When I work with clients, it becomes apparent that a viable business model drives the entire SP. The SP then determines the timing of each layer of the SP program and subsequent projects within the CRM-Suc, EE-Suc or EQ-Suc programs. Unless the SP is structured properly, the FOM will have the tendency not to consider the EQ-Suc program alone, according to Kansal (2012). That being said, there are many EQ-Suc implementation tools identified in Harter (2008b), such as type of Buy-Sell Agreement.

To reference again the 2-inch of snow in the D.C. area, it seems the municipality should have been able to look to its own tools to find which to use. For example, in this situation, the D.C. plan was for the municipality to send out trucks to brine the road instead of using salt. However, this escalated traffic congestion and paralyzed most of the roadways during rush hour. Therefore, having a discussion about an EQ-Suc-specific implementation tool will not help any FOM understand why and how to move forward for the overall well being of the SP. Any mismanaged program will send the FOM spinning forever and halt the entire business—much like D.C. came to a complete halt during the 2-inch snow because a wrong forecast and plan was used.

An empirical study from Potts (2001a) and Potts (2001b) shows unless the FOM’s retirement planning is properly addressed, it is difficult to motivate an FOM to move forward with any part of the SP.

We leverage the Triple Bottom Line concept to run a business Succession Portfolio (SP) Framework to guide our clients. We help them determine the most appropriate next step per SP without losing sight of the overall well being of the enterprise. Once you have a sustainable and viable business enterprise that continues to create equity value for the owners, the tools to use within SP become obvious and timely.

Has this article triggered questions about your business Succession Portfolio Framework? Please feel free to send those questions to Chia-Li Chien, CFP, PMP or (704) 268-9378. We’ll contact you for a free thirty-minute consult. Start gathering the right tools and making smart plans today! Schedule an appointment, now!


Harter, L. (2008a). Succession Planning: What Prevents a Business from Hitting One out of the Park?. Journal Of Practical Estate Planning, 10(4), 19-53.

Harter, L. (2008b). Succession Planning Part II: Business Succession Is a Team Sport. Journal Of Practical Estate Planning, 10(5), 17-24.

Le Breton-Miller, I., Miller, D., & Steier, L. P. (2004). Toward an Integrative Model of Effective FOB Succession. Entrepreneurship: Theory & Practice, 28(4), 305-328. doi:10.1111/j.1540-6520.2004.00047.x

Kansal, P. (2012). Succession and Retirement Planning: Integrated Strategy for Family Business Owners in India. Vilakshan: The XIMB Journal Of Management, 9(1), 23-40.

Potts, T. L. (2001a). Effective Retirement for Family Business Owner-Managers: Perspectives of Financial Planners, Part I. Journal Of Financial Planning, 14(6), 102.

Potts, T. L., Schoen, J. E., Loeb, M. E., & Hulme, F. S. (2001b). Effective Retirement for Family Business Owner-Managers: Perspectives of Financial Planners, Part II. Journal Of Financial Planning, 14(7), 86-96.

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