What is the Community Bank’s Role?
Business succession can be a profitable event for community banks that are proactive in helping owners prepare, implement and execute a succession plan. Banks can generate tens of thousands of dollars in succession-related fee income, which is very attractive in today’s environment in which opportunities for generating significant fee income are somewhat limited.
Every day many small business owners are reaching retirement age and ready to hand the reigns of their companies over to the next generation of leadership. Unfortunately, not all of these business owners have a good succession plan in place. As a commercial lender, you have a vested interest in the ongoing success of the businesses in your loan portfolio. This is one of the many reasons why you should be proactive in helping your borrowers in creating an effective succession plan.
Ownership and Management Succession
The broad topic of succession planning can be broken into two categories: ownership succession and management succession.
Some business owners don’t realize that much of the value of their business lies in the relationships they have built over many years with customers, vendors and other stakeholders. It takes time to transition these relationships to the successor owners — this is not something that can happen overnight. Therefore, most experts recommend that ownership succession planning should start at least three to five years before the owner’s planned exit date from the company.
On the management succession side, owners should be thinking about building a strong successor management team well in advance of their planned exit date — again, at least three to five years, ideally. The management team is not the same thing as the successor owners: While it could obviously include the successor owners, it should also include all the key employees and managers who will be responsible for running the company on a day-to-day basis.
One of the biggest mistakes owners make in management succession is not giving the next generation of leadership any real authority or responsibility before stepping aside. Problems arise when the owner steps away and the next generation is finally on their own. If they have never been given the authority or been responsible for making decisions they will not be prepared to properly run the company.
You can play an important role in helping your borrowers understand the importance of early succession planning and getting a jumpstart on the process. For example, if you know that a borrower is nearing retirement age, arrange a meeting to talk with the borrower about the succession planning steps he or she should be taking. You could even help the owner create a timeline with key dates by which certain succession planning activities should be completed.
Please contact us if you have any questions about Succession Planning 417-881-0145.