Family business succession planning is often complicated and requires multiple processes to complete. There are both the legal and financial obligations to contend with, as well as family dynamics that come into play.
If you would like to pass down your family business to the next generation, some key considerations must occur. Essentially, you need to have a thorough examination of your successor and your family and business.
There are four main parts to family business succession planning:
While strong leadership is required for any business’s success, you need to weigh both your family and business considerations. While in theory, it can sound like a good idea to have one executive and decisions flowing from that central person, but that does not always translate to success.
Suppose other members of your family are going to be involved in the business, whether as board members or else, you may want to consider restructuring your company. Reporting done in Harvard Business Review shows what can happen when a firstborn son took over a company and tried to mold it for the future:
“After his father passed away, Hampton and his siblings became co-owners of the business, with Hampton remaining in the CEO position. Following his father’s traditional playbook, Hampton made several critical decisions without consulting his siblings. Hampton’s unilateral decision to replace several long-serving board directors was the proverbial last straw. Though his intentions were good — he was bringing in new board members with expertise in a growing segment of the business — Hampton’s siblings were enraged by his actions, not only because they held close relationships with the replaced directors, but because they feared that their opinions as co-owners had been ignored. Hampton’s relationship with his siblings devolved into infighting, significant business losses, and eventually lawsuits.”
To avoid infighting, consider family business succession planning that will bring a clear and upfront direction. Company succession may mean that an employee is groomed to take over instead of the business passing onto a loved one. Loved ones then take more of a back seat role or act as board members.
Also, consider that each generation in your family is different. Frequently, a business will need to transition services or adapt to new market pressures. A new business owner should be able to have complementary skills that are compatible with adapting. In simple terms, personality, work ethic, leadership, and personal innovation all play a role in your choice for family business succession.
Consider whether your successor or successors have the skills to:
Family business succession planning is a long term process. You cannot allow for the succession process to wait until the last minute, as Business Law Today notes:
“The most recent PWC U.S. Family Business Survey (2016) concludes that inattention to succession planning is a substantial problem for many family businesses in the United States. The authors of the PWC Survey found that owners of 69 percent of the family businesses surveyed expected ownership of the business to continue in the next generation, but only 23 percent had a robust, documented business succession plan.”
Planning your succession multiple years in advance allows you to make adjustments as you see fit. Whether that means picking a different succession plan entirely or hammering out the legal details for multiple directors, starting sooner rather than later gives ample time to adjust.
This applies not only to you, but your family, employees, and board members as well.
A transition period will help your family business succession planning produce realized results. Duties will be gradually bestowed upon your successor, employees and family members can adjust, and you get a sense that day-to-day operations will improve.
This can take form in the shape of having an employee mentor a family member for several years or working in tandem with you. A transition period can help ease tensions if you decide to go with an outside successor. You must give ample time during a transition period.
While it may seem simple at first, family business succession planning can become problematic. You will need to navigate family disputes, business dealings, and legal ramifications. You don’t have to do this alone.
Bringing in an outside company to help with succession can eliminate the stress of picking a successor or bring clarity to your decision-making process. You will gain an objective view of what your company needs for the transition. Although the process is involved, it becomes much more manageable.
Are you considering succession plans for your family business? Would you like guidance in securing your family legacy and name? Consider Sheffield, Trackwell, and Rapp for all of your family business succession planning needs. We can help walk you through the process and ensure a healthy transition that will set your business up for even more success. Contact us today to lay out your plans for the future.
STRCPA is available during this tax season to meet your needs. We are available via phone or email. Contact us