This Company Conducted a $1.2-Billion Restructuring as Part of Succession Planning -- Here's What You Need to Do to Prepare for a Leadership Change How entrepreneurs and business owners can prepare for the next generation of leadership.

When it comes to preparing a succession plan, it's probably not at the top of the typical entrepreneur or business owner's to-do list. Preparing for the next generation of leadership and putting a succession plan in place takes time, planning and thoughtful execution.

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As business leaders and executives, we are typically inundated with the task of the day or the week, so the long-term process of preparing a succession plan often gets pushed to the bottom of the list. In fact, according to a recent survey done by Nationwide, roughly three out of five small businesses do not have a succession plan in place. However, preparing for the transition of leadership is a crucial element in ensuring the future success of a company.

At Westwood Financial, we recently restructured our firm to position it for future succession, and to ensure that we had procedures in place that would allow the company to continue on well after the first generation of leadership.

This is something that entrepreneurs and business owners need to actively pay attention to, especially if the company structure is closely intertwined with its founding leadership -- structurally, financially and emotionally. This was the case with our company, which required a significant restructuring in order for successful operation into the next generation.

Based on our experience during this process, we've put together a list of the top six strategies for entrepreneurs and business owners to execute in order to provide a smooth and successful transition of power:

Step 1: Identify the goals of the founding leadership.

The first step in any successful succession plan is identifying the objectives of the founding leaders. Often, founding leaders have put their blood, sweat and tears into building the company, and it is imperative to carefully outline what a succession plan will need to achieve to meet the objectives of the founders.

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Leadership may need to address and negotiate the generational differences that often occur with the transition of power. The founding leadership and the new leadership may have different views on how the company should operate moving forward. There may be generational issues, family ownership and estate planning issues, and family and non-family employees and executives. Determining clear objectives will help to ensure a smooth transition.

During the restructuring of Westwood Financial, we met regularly with the founding leadership and their advisors to determine what they wanted and how to address their needs, as well as the future of the company. Consultants with experience in family business and business relationships might be useful in identifying and negotiating the various needs, objectives and views of the founding and succession leadership.

To address some of the issues surrounding our investors and decision-making authority, we instituted a board of directors, in which the founding leaders and independent directors would take on a strategic governance role in the firm, yet the new leaders would handle the day-to-day operations, advise on the direction of the company and execute the strategic plan. Outlining these goals, expectations and approach to governance in advance was an essential component in the future success of the succession plan.

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Step 2: Identify the interested parties.

Once you've determined the objectives of the company's founding leadership, the next step is assessing all of the constituents and individuals that may be impacted by the succession plan.

Succession planning often involves several individuals or parties, and will vary from company to company. It will require looking at the big picture and ultimately determining who this plan will directly and indirectly affect.

Think about the company and who is involved on a regular basis. This will likely include a large list of constituents including shareholders, employees, clients, vendors, investors and founding families, among many others. It is a crucial component of the succession planning process to determine who these individuals are and the level of impact this plan will have on them.

Business owners and entrepreneurs will also need to determine upfront what the rights of these individuals are under contractual agreements and what concerns may arise as they delve deeper into the succession planning process.

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Step 3: Consult with the experts.

Succession planning, especially in combination with estate planning for closely held companies, is complex. It is essential to identify and incorporate the appropriate experts. The first mistake that business owners or entrepreneurs make is thinking that they can do this on their own. This is a complicated process that takes an entire team.

The consultants and team members needed to complete the succession plan will vary depending on the type of business and needs outlined in the plan. That said, there are a few key parties that should be involved in any succession planning process.

The first is a core group of attorneys that have a deep understanding of the objectives of the business owner's succession plan to address issues of ownership and control, taxation, employment and estate considerations. The second are accountants, including both personal and corporate accountants, depending on how the succession plan is set to be structured.

These parties can work to ensure that everything within the succession plan is in compliance with the law and if there are any tax considerations to address.

For example, when we restructured our firm, we worked with a diverse group of highly experienced lawyers, accountants, capital and valuation consultants, and a title company to get the job done. All of these individuals worked tirelessly alongside the Westwood team and played a critical role in navigating a diverse series of complex details surrounding this restructuring, including corporate and tax structures, securities laws, governance, employment agreements and deferred comp structures.

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Step 4: Prepare employees.

Once the succession plan is completed, it is time to prepare the company's employees. These staff members are the individuals who carry out the mission of the organization, and effectively communicating the plan to these individuals is critical to its success.

Companies must give employees a clear path of understanding, as well as confidence in the future of the organization. While many of the corporate employees may already be involved in the planning that occurs, the entire company should be well informed of the plans. A transition of power can be a confusing and uncertain time for employees. A clear message will alleviate concerns of the staff members and provide the proper platform for effective leadership of the successors.

Business owners will need to ensure that their employees feel reassured that the company is prepared well for the transition and that it, along with their jobs, will continue on with the new leadership.

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Step 5: Prepare clients.

Preparing clients for a transition of power is never an easy task. They have put their faith and trust in your firm, and will need to clearly understand the changes and benefits to them in the transition.

If cooperation from investment partners and clients is an essential part of the transition, communication must be clear and needs to start early in the process. This was the case with our firm, which required affirmative approval from 67 separate investment partnerships involving over 500 investors to implement the reorganization plan.

Clients must be assured that their needs will be taken care of and that this transition of power will not impact the level of service they have been receiving. Most of these individuals have a lot invested in the company, so it is important that they are informed in the most understanding way possible. Personal communication and conversation in advance of any formal documentation requests can make the process easier for the company and its investors. Client or investor feedback can also be incorporated into the planning process.

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In the real estate industry, much of the trust of clients and investors comes from personal relationships and a confidence in the company's manner of conducting business that are cultivated over many years. With this in mind, appropriate, effective and personal communication with our investors and clients was imperative. This communication started with initial conversations with key investors to inform them of our early stage plans, and the full communication cycle took more than 18 months.

Naturally, we know that notifying clients' in person is not realistic for every company or industry. The key is creating an opportunity for open communication and dialogue with the clients that reassure them everything will continue to move forward and that there will be no surprises when the succession takes place.

Step 6: Prepare succession plan for the next generation.

The final, and often most neglected step in planning, is preparing for the next succession plan. According to Analytics Week, 42 percent of advisors who are within two years of transitioning their business to a successor lack a succession plan.

The future is not premeditated and is hard to predict, so having a back-up plan prepared right away is critical. An effective succession plan not only addresses the immediate shift of ownership or management, but lays the groundwork for smooth future transitions. A strong plan will focus on a scaffolded system of organization, governance, executive training and leadership "bench strength."

No matter the age or health of the new CEO, companies can never be completely sure of what the future may hold. Having a clear plan of action that defines how an organization will run into the next generation helps to guarantee the success and longevity of a company.

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