Dealing with the Inevitable: Succession Planning

Ryan Katen, MMT EAB member and General Manager at Micro Mold Co., says that every successful company will be confronted with “passing the torch” at least once and hopefully multiple times. There are different ways to go about succession planning, depending on the specifics of the individuals and the company that is transitioning its leadership.

I can speak to what we did to ensure a smooth transition and how it worked for us. To begin with, my father told me he had three choices: Pass the company on to his children (if they were interested and it was a fit—the preferred option), sell the company to a third party or close the company. Obviously, closing the company would have been the last resort. We took the following steps to form a solid succession plan that was based on his experience and, more recently, my experience and my brother’s experience.

Every company is unique, and you won’t always see eye to eye, but it is never too early to have this discussion.

First, you must sit down with all of the shareholders and discuss what each of your individual goals are and what your vision is for the company’s future. It is important to treat the discussion like you would any other issue where your goal is to devise a solution that you can all support. Every company is unique, and you will not always see eye to eye, but it is never too early to have this discussion. In our case, we discussed our plans for exiting the company someday. We also made plans for potential, unexpected departures and how the company will financially and logistically handle those events. Without those plans, an unexpected situation could cripple a company financially. 

Next, meet with a lawyer and an accountant. They will ensure that you consider all of the possible exit scenarios, like death, disability or retirement and whether you have children or a spouse who may wish to run the company and your employees. We have worked with most of our people for a long time and they mean a lot to us. We do not want to jeopardize their jobs by putting the company in a very dangerous situation financially. The lawyer and the accountant can create the plan based on all of this information and your current shareholder agreement. They also will call your attention to any potential issues, like tax penalties, and help you avoid them. Once the succession plan is written, make sure you understand and agree with what you are signing. If something happens, the succession plan legally dictates what will happen.

Finally, recognize that a company’s vision and goals change over time, as do the plans of your shareholders. We have revisited our succession plan twice since we took over our company in 2011. A good plan can help the next generation get started on the right foot. A bad one could leave it extremely vulnerable and prone to failure.