Chapter 1
What is succession planning?

Succession planning differs from other types of business planning in that it doesn’t try to predict the future. Instead, a solid succession plan is based on the acceptance that you don’t know what will happen but that you will be prepared anyway.

Experts say that more than 40 percent of family-owned businesses will experience a change in ownership in any five-year period. Of those, only 4 percent have a formal succession plan. If you are among the other 96 percent, consider that:

• Changes in leadership of your business may be expected or unexpected when they occur, but they will occur.
• Neglecting to include a formal succession plan as part of your overall business strategy introduces uncertainty that could threaten the survival of the business.
• 65 percent of family-owned businesses do not survive past the first generation of ownership, largely due to poor succession planning.

The lack of succession planning has created a serious threat to the survival of family-owned businesses throughout the world, let alone in the trucking industry. While not solely due to lack of succession planning, the dismal rate of family-owned business failure can largely be attributed to not being able to successfully pass the business on to the next generation.

One way or another, you will leave your business one day. Without a formal succession plan, your business may not:

• Provide for the retirement you want;
• Retain its value for your heirs; or
• Continue on successfully as you had envisioned.

The bottom line: The absence of a succession plan is the willful destruction of your trucking company.

Ensuring continuity
The most important step toward succession is the creation of a business that runs itself. Think of any Fortune 1000 company. If the CEO died tomorrow, would the business continue? Of course it would. These businesses have systems, people development, strategic plans, operational plans and a tested company structure. The challenge as an owner is to build a company based on commonly understood priorities and procedures, not just on the force of the owner’s will and personality. For example, does your company have a tested safety program? An operations manual? A written driver retention strategy? A succession plan starts, therefore, with fully trained personnel operating under clear guidelines.

Understand what’s at stake. The table on the next page shows the reasons businesses fail as identified by ROC Systems Pty Ltd., a company that helps accounting firms help their clients achieve desired results.

While “lack of a succession plan” does not appear at all, there must be some reason why so many failures occur in the second generation of ownership. Often, the successor owners don’t understand how to run the business because the first generation doesn’t train them. This is especially true in a family business. Notice, only 18.6 percent of failures – economic conditions and union problems -- are outside of the owner’s control. Don’t assume that because your child can run dispatch or manage the shop that he is ready to take control of the entire company. Transition happens whether or not you have a succession plan. Triggering events could be boredom, burnout, a heart attack or any number of sudden or gradual crises. Don’t wait for the triggering event. Assume that it could come at any moment.

This book addresses succession planning methodically, starting with a discussion of the five basic ways a business can transfer along with some important considerations for family-owned businesses. Then, we will address in detail the key elements of the process – business valuation, estate planning and asset protection. Finally, we will pull it all together with discussion on structuring and financing a succession plan.

This book is an introduction to the topics associated with succession planning and is meant to lead you in self-exploration of where your trucking company and ownership stand. Use the checklists and diagrams to chart your own company and find a qualified adviser to help you sort through the issues and dive deeper into the solutions. Also, it is not the intent of this book to give you tax advice, as every situation is different. Talk with your tax adviser on any potential action