Close this search box.
Home / Articles / When a leadership change is in order, be a resource

When a leadership change is in order, be a resource

December 18, 2012


Lenders often form long-term, and even close, relationships with their business loan customers. So when a customer needs to turn over the management reins to a replacement, it may be hard for them to say good-bye to the old and hello to the new. But the well-being of your customer’s business may depend on it. Consider the following example.

A customer’s tough decision

Six years ago, Jason Jones (not a real name) told his lender, Chris Cash, that he had been diagnosed with chronic heart disease and intended to turn over Jones Industries to his twins, Jack and Jill.

Chris was understandably concerned — not only for Jason’s health, but also because he knew firsthand the failure rate for second-generation owners. To make matters worse, Jack (a social worker) and Jill (a nutritionist) lacked the manufacturing experience, technical know-how and fiscal discipline that had made Jones Industries a model borrower for the last 17 years.

Chris had a frank discussion with Jason about the future of Jones Industries. Although Jason wanted to see his children take over the reins, he wondered if they were truly qualified for the job and willing to dig in. Did Jason want Jones Industries to survive him?

When Jason admitted that Jack and Jill weren’t optimal successors, he gifted stock to the twins instead, which provided them with a passive income stream and seats on the company’s board of directors. With the help of Jason’s accounting firm, an interim CEO was identified. Additionally, a professional management team was assembled to handle the day to day operations of the business. Chris also advised Jason to inquire of his accounting firm of its ability to perform outsourced accounting functions as well as other short term needs that may arise during the transition.

Although Jason didn’t survive his heart problems, his legacy lives on through Jones Industries. With the help of the company’s relationship with both its Lender as well as its accounting firm, new management team has taken the company to the next level, and it’s considering a public offering this year.

Your take on the situation

At some point every business outgrows its first-generation entrepreneurs. Perhaps the founder — like Jason — faces health issues. Or perhaps the company reaches a critical mass that exceeds the founder’s abilities, or partner disagreements reach insurmountable proportions. When current management is struggling to stay afloat, the owner faces tough choices: Should it bring in a family member, hire more experienced outsiders, or sell to a larger organization? In order to recognize when it’s time to upgrade management, lenders should visit the borrower’s premises to get acquainted with the people behind the numbers.

When talking to owners and managers, consider their ages, health and retirement goals. Use your knowledge and experience to help evaluate whether the owners are buried in administrative chores and spend less time in activities such as brainstorming ideas and landing new accounts.

Ask to see the organizational chart and job descriptions. Every business should have a tiered structure and a viable succession plan. Such planning minimizes the risk of relying too heavily on key people. Also evaluate the qualifications of up-and-coming managers — do they have what it takes to run the show? If not, training and mentoring are in order.

An assist from you

If a borrower is in the same or similar situation as Jason, it’s time to encourage a management change or upgrade. Higher-than-average unemployment rates make it an employer’s market. And many skilled but out-of-work managers will likely be eager to jump aboard your borrower’s ship.

Lenders and accountants can introduce borrowers to their networks of business contacts, which include, for example, potential CFO, CIO and CEO candidates, business appraisers and brokers, and executive recruiters.

Proactive steps

A business can get a new lease on life with a change in leadership. The right top manager can breathe vitality into a business with a future that’s on hold. But if your customer waits too long to initiate change, the business is likely to get off track. Be the expert resource you can be, and encourage your customer to take proactive steps now.

For more information contact Jon Plunkett at [email protected].

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


Related Articles


2 Min Read

Business Vehicle Deductions: Understanding the Latest Methods and Rules


2 Min Read

Invest in Your Financial Success With Smart Tax Planning


2 Min Read

Governmental Accounting Standards Board (GASB) 101: Understanding Compensated Absences


2 Min Read

CSH Names 4 New Shareholders and Promotes Over 90 Professionals


2 Min Read

Effective Planning for Private Foundation Grant Distributions


2 Min Read

Your Financial Toolkit Must-Haves: Breakeven and Cash Burn Rate

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.

  • Hidden
  • This field is for validation purposes and should be left unchanged.