Succession Planning: Family Business Assessment Checklist

Family Business Assessment Checklist

Business issues 

  Yes No
Have written goals for sales and profits been set?    
Do we have a business plan?    
Do we have a strategic plan?    
Do we have formal (in writing) policies and procedures?    
Is the business in good financial standing?    
Do we have an operating budget?    
Do we have a compensation and incentive program?    
Do we have a performance appraisal system?    
Do we have a board of directors?    
Can we attract and retain non-family managers?    
Is the business in a highly competitive industry?    
Are we experiencing an increase in sales?    


Family business issues    


Do family members know they are welcome to join the firm?    
Do we have policies for entry into and exit from the firm?    
Is a system in place to train and develop the successor?    
Do we have a succession plan?    
Can family members in the firm effectively communicate?    
Do we have a system to resolve conflicts?    
Are women welcomed in the business?    
Is there a minimum amount of sibling rivalry in the firm?    
Is there a system in place for choosing a successor?    
Does the family agree on goals for the business?    


If you answered no to any item action should be outlined and implemented to address and set policies for that item.

Succession Planning : Managing a Family Business (Part 3)

Succession Planning : Managing a Family Business (Part 3)

q  Do you use job descriptions for your key personnel?

 When you and your key personnel write descriptions for their jobs, you and they have a clear understanding of what is to be done and by whom. Such an understanding is essential in any small business. In addition, when, and if, a key person leaves, the job description is a helpful tool in recruiting and training a replacement.

 q  Do you periodically compare performance of key personnel with their job descriptions?

 Periodical comparison of performance helps your key personnel to be efficient. It also helps to pinpoint weak spots for you and them to work on for improvement.

 q  Do you provide opportunities for key personnel to grow?

Your aim should be to help key personnel stay alert to new and more efficient ways to do things. Conferences, seminars, and workshops which trade associations and agencies sponsor can help key personnel to grow in their management skills and outlook. Rotating job assignments is a way to make key personnel aware of the problems that their counterparts face. Include in your budget an amount that can be spent during the year for personnel training and education.

 q  Do you face the issue when key personnel stop growing?

Some owner-managers try to avoid the unpleasant task of facing the fact that a key person has stopped growing. It may be the result of not matching personnel and the job. If there is little or nothing you can do about such a mismatch, face it and don’t waste time trying to do the impossible. On the other hand outside problems may be crowding in on the key person. Once you know why he or she stopped growing, you can determine what needs to be done. In some cases, additional training is the answer. In other cases, the motivation that results from broadened job responsibilities resolves the problem.

 q  Are there policies and plans for motivating employees?

 Working through others is but no means an easy task. First of all, people are not puppets that can be moved by strings. Life may be a stage, as the poet said, but most people in small business are reluctant to submit to directors. Look for ways – good communications, respect for their viewpoint, incentive pay, and so on – to encourage people to want to do what you need them to do as employees in your company.

 q  Do you have adequate employee benefit plans?

 This includes life and health insurance, major medical, and pension. Benefit plans often are necessary to meet competition for skilled employees. Substantial plans can help to hold non-family key individuals in a family-owned business.

 q  Do you have key personnel insurance on yourself and is your family protected against your untimely passing?

 If these precautions are not taken, your death could result in the rapid dissolution of the business.

 q  Is there lack of communication among key personnel?

 The routine passing of information among you and your key personnel may be all that you want it to be. But what about disagreement? Do key personnel refrain from expressing disagreement with you? Good communications should provide a forum for exchanging ideas and for airing differences of opinion. Possibly an early morning meeting once a week among you and your key personnel would provide a forum for exchanging ideas.

 q  Does your record keeping system present a realistic picture of your business?

q  Is this the same type of record keeping system that other companies in your industry commonly use?

 Appropriate records should give the owner/manager answers to questions such as:

            Is there sufficient cash to operate the business?

            To pay back the bank?

            To pay taxes?

            Is too much capital tied up in inventory?

            Are accounts receivables being collected promptly?


Corporate records, if your company is a corporation, should be up-to-date including corporate minutes and record books. In checking out your record keeping, keep in mind that a poor system can result in excessive and meaningless information.

 q  Do you seek legal and financial advice on major transactions?

 The fine print in contracts causes trouble for some small business owners. They did not realize until it was too late what they had agreed to do. Legal and financial advice at the appropriate time can help the owner-manager to comprehend the full scope of your company’s contractual obligations and allow you to make decisions based on facts rather than assumptions. Whenever possible use your standardized contract in making contractual obligations.

Succession Planning Part 22: Managing A Family Business (Part 2)

 Succession Planning Part 22: Managing A Family Business (Part 2)

This is the second of a 4 part checklist for managing a family business.

q  Do you test or check the reality of your goals and plans with others?

 Outside advisors may spot “bugs” that you and your people did not catch in the press of working through the details of goal setting, budgeting, and planning.

 q  Are operations reviewed on a regular basis with the objective of reducing costs?

 Costs must be kept in line for a profitable operation. Review operations periodically such as weekly or monthly, to insure that overtime is not excessive, for example. And what about quality product acceptance by customers? Costs may be excessive because of obsolete methods or machinery that has seen its best days. And what about plant layout or materials flow? Can changes be made that will save time and materials? Determine the frequency of your reviews for the various types of operations and place a tickler on your calendar to remind you of these review dates.

 q  Are products reviewed regularly with the objective of improving them?

 Products that your customers benefit from are the keys to repeat sales. A regular review of your products helps to keep them up to the expectation of customers. Feedback from customers can be useful here. To reduce costs sometimes a product can be modified without sacrificing use and quality. If product obsolescence is a hazard, what plans are being made to substitute new products, as existing ones become obsolete?

 q  Do you ask outside advisors for their opinion and suggestions on products and operation procedures?

 Outside persons can help you see the facts about your products and operating procedures. They can provide a fresh viewpoint – the viewpoint of persons who are not so involved in the products and operations as you and your key personnel. The suggestions and counsel from a local management consultant may provide benefits far in excess of his or her cost. In this area some small companies set up a board of directors to satisfy the law concerning small corporations. But that is the end of it. Members of the board are not used for their knowledge and skill in business. They can make valuable contributions and the owner/manager should use all possible opportunities for getting such concerned opinions about the various phases of the company.

 q  Are marketing and distribution policies and procedures reviewed periodically?

 The best made product in the world can run into trouble if marketing and distribution policies and procedures are not right for it. Periodical checks can help you to be aware of changes that may be taking place in the channels through which you distribute. One approach is to check your competition; does it seem to be changing channels and policies? Can you still meet the requirements of your customers by using your traditional channels of distribution?

 q  Are there periodic reviews of profit and loss statements and other financial reports?

 In these reviews you can compare your operating ratios to those for your industry. It is also helpful to review your cash flow projections to see what, if any, changes are needed in your financial planning.

 q  Do you have an organization chart?

 You may need only a simple organization chart to show accountability and to establish a chain of command. In a family business, accountability and chain of command should be spelled out so that the one who is the chief executive of the company has the “mandate” he or she needs for managing.

Succession Planning -Part 21: Managing a Family Business (Pt. 1)

Succession Planning -Part 21: Managing a Family Business (Pt. 1)

 No small business is easy to manage, and this is especially true in a small family business.  It is subject to all the problems that beset small companies plus those that can, and often do, arise when relatives try to work together. This will be a 4 part post as the check list for Succession Planning -Part 21: Managing a Family Business (Pt. 1) Is a long one.

 The family member who is charged with managing the company has to work at initiating and maintaining sound management practices. By describing what is to be done and under what circumstances such practices help prevent some of the confusion and conflicts that may be perpetuated in family run businesses

 The questions in this checklist are designed to help chief executive officers to review the management practices of their small family companies. The comments that follow each question are intended to stimulate thought rather than to include the many and various aspects suggested by the question.

 This checklist should serve as a motivator and an outline for you and your business advisors to set in motion the essential changes needed to insure the success and continuation of your business!

 q  Do you have written policies?

 Flag this question and return to it later. Working through this checklist should suggest changes that may be needed even if you have written policies. By the same token, your business will provide input for writing out policies if there are none in writing.

 q  Is executive time used on high priority tasks?

 The time of the owner-manager is one of the most valuable assets of a small business. It should not be dribbled away in routine tasks that can be done as well, if not better, by other employees. Never lose sight of the fact that you as owner/manager, have to make the judgments that will determine the success of your business.

 You may want to run a check on how your time is used.

You can do so by keeping a log for the next several weeks. On a calendar memorandum pad jot down what you do in half-hour or hour blocks. Then review your notes against the questions: Was my time spent on management tasks such as reviewing last week’s sales figures and noting areas for improvement? Or did I let it dribble away on routine tasks such as opening the mail and sorting bills of lading? You may want to ask your key personnel to run the same sort of check on their time.

 q  Do you set goals and objectives?

 Goals and objectives help a small company to keep headed toward profit. Goals and objectives should be specific and realistic. In addition they should be measurable, time phased, and written. List your goals and objectives by writing them out for your present successful operations. Objectives that are written out in straight-forward language provide a basis for actions by your key personnel. For example, state that you will sell certain number of units this year rather than saying you will increase sales.

Is planning done to achieve these goals and objectives?

 In a sense, planning is forecasting.

 An objective, for example, for next year might be to increase your net profit after taxes. To plan for it you need to forecast sales volume, production of finished goods inventory, raw materials requirements, and all the other elements connected with producing your forecasts, you will want to make provision for watching costs, including selling expenses. If there are key employees who can provide input into the planning, ask them to become involved in that process


Succession Planning Part 20: Making Succession Work

Making Succession Work

 The key to making succession work – you must honestly communicate. This is the key ingredient. Use the family retreat as well as family meetings. Family meetings can educate the family in discussions about the nature of the firm, the kinds of leadership skills needed, entry and exit conditions, decision-making policies and conflict resolution procedures. Casual conversations about these issues can contribute to your formal planning later on.

 Family meetings do not have to be formal affairs, but they should occur regularly and have an agenda. Parents don’t have to lead the meeting; have the offspring organize and conduct a portion of the meeting. Use the meetings to defuse any potential time bombs.

 Anticipate problems. Will there be any problems with non-family members? If so, which ones? How will they be a problem, and what can you do (short of firing them) to handle it?

 Sibling rivalry is another problem to consider. Does it exist? If so, how will you resolve it?

 It may not be a problem until the successor is named. Develop a code of conduct for sibling relations. This code will outline how siblings must act toward each other (i.e., in a way conducive to a healthy business), including how to work together, how to play together and how to keep spouses informed about what’s going on. Anticipate problems that may arise and meet them head on.


Succession is a process that may extend from two to four years or longer depending on your age and on your successor’s age. It occurs in phases. Over a period of time, you initiate or educate your children to the family business. After determining a successor, you develop a plan to transfer leadership in the family business. The decision to announce who the successor is and when the transition will occur depends on the family.

 There are benefits to making an early announcement, including (1) reassuring employees, suppliers and customers, (2) allowing siblings time to adjust to the decision and to make alternative career decisions, if necessary, and (3) enabling the entrepreneur to plan for retirement.

 The fundamental goal should be to pass the family business successfully to the next generation. To do this you must feel financially secure, secure with the company’s future goals and plans and secure with your successor.


Succession Planning – Part 19: Letting Go

Letting Go

There are many reasons why entrepreneurs cannot let go of the family business. Primary among these are financial ones. As a business owner, you may be used to a large salary and benefits, such as a car or insurance. After working hard in the business most of your life, you want your retirement years to be comfortable, not filled with financial anxieties. Letting Go will be hard but it will give you a chance to live.


There are several ways to ensure your financial security after retirement. Business owners usually consider either taking what they need from the company after they retire or arranging a buy-out that will give them the needed liquidity without placing an undue financial burden on the company. If you don’t sell the company and your financial security is contingent on its daily operations, you will be less likely to retire completely. Your successor needs full control, and you probably won’t let that happen. Also, the company may not be able to support you and the successor and still pursue the strategy you have set for it. Finally, you may not be able to meet your financial goals from income generated by the company.


To avoid these problems, consult with a financial planner or an attorney to determine the method of transfer that is best for you. There are tax consequences to the outright sale of the business to your children. Also, an outright sale may burden the company with too much debt. Other alternatives include an installment sale or private annuity, or funding a buy-sell with insurance proceeds. To provide effectively for your retirement, seek professional assistance in this area.


There are other reasons why the entrepreneur doesn’t want to let go. One of the primary reasons is the fear of retirement. To understand this fear, it is necessary to appreciate the relationship between work, the meaning of life and social evaluation. For many founders, work and the business are synonymous with a meaningful life. The intense involvement the entrepreneur has with the business increases the importance of the job and his or her identity. Removal from work is like losing a part of oneself. Work is important to the entrepreneur because it provides:


ü  Economic returns.

ü  Opportunities to contribute to society.

ü  Status and self-respect.

ü  Social interaction.

ü  Personal identity.

ü  Structured time.

ü  Escape from loneliness and isolation.

ü  Personal achievement.


That’s a lot to ask someone to give up. Especially important is the loss of status and social power. The leader of a firm wields a great deal of influence and enjoys public impact and public exposure. Retirement means giving up this power. Because this loss is unpleasant, it is not uncommon for a founder to give a successor the responsibility for running a firm and still try to retain power and privileges from a position on the board of directors.


The entrepreneur who successfully lets go has:

(1) a sound financial plan for retirement,

(2) activities outside the business that can provide social contact and power,

(3) confidence in the successor and


Succession Planning – Part 18: Education of the Successor

Education of the Successor

Training or educating the successor in the firm is a delicate process. Many times a parent finds it difficult to train a child to be successor. If so, an alternative trainer may be found within the firm. A successful trainer will be logical, committed to the task, credible and action oriented. These attributes, when tied into a program that is mission aligned, results oriented, reality-driven, learner centered and risk sensitive, will produce a well-trained beneficiary. All of this, of course, is easier stated than accomplished. Education of the successor should be a priority for it will determine the future success of the business.

 A training variant of the management by objectives (MBO) concept is the training by objectives (TBO) concept. This concept can be an effective method for providing both the training for and the evaluation of successors. In the TBO process, both the trainer (you or a non-family manager) and the trainee (potential successor) work together to define what the trainee will do, the time period for action and the evaluation process to be used. This system allows the successor to be placed in a useful, responsible position with well-delineated objectives. It also provides for steps of increased responsibility as goals are met and new, more rigorous goals are established. It is important that the successor enter the firm in a well-defined position. Instead of entering the company as “assistant to the president,” which requires that he or she follow the president around all day, the successor (or any other child) should enter with a specific job description. In a small business this is very difficult because everyone is usually responsible for all tasks. Nevertheless, the successor cannot be evaluated effectively if he or she is not given responsibility and authority for certain tasks.

 Your business will enable you to determine which criteria are necessary for good training. Usually, an owner wants to assess a successor in the following areas:

  • Decision-making process.
  • Leadership abilities.
  •  Risk orientation.
  •  Interpersonal skills.
  • Temperament under stress.

 An excellent way to assess these skills is to let the successor give his or her insight on a current problem or situation. This is not a test and should not be confrontational. Instead, solicit advice and try to determine the thinking process that is generating your successor’s suggestions. For example, you may be faced with a pricing decision. Give the successor all the information needed to determine whether or not to raise prices, then sit back and listen. Ask questions when appropriate–these should be “Why?” and “What if?” After the successor is finished, say “I was considering . . ..” This way each of you can learn how the other thinks and makes decisions.

 It is possible that your leadership style differs from that of your successor. Your employees are used to your style. If your successor’s style is very autocratic and uncaring, your company is going to experience problems.

 Potential successors should be introduced into your outside network (e.g., customers, bankers and business associates), something many managers neglect. This will give everyone time to get to know your successor and allow the successor to work with business associates and bankers, and to get acquainted with customers.