Family Business: The Succession Planning Process

SUCCESSION PLANNING

Running a business is hard work. Most business owners find themselves too absorbed in the business to work on the longer term problems like planning for succession. The daily work needed to make a business successful leaves no time to plan for the ownership and management changes that will inevitably occur. Moreover, when planning for succession, a number of tough personal issues surface such as “What will I do when I retire?” These issues are often more complex when there are no clear successors who can take over the business.

The Succession Planning Process

The goal is to design a plan that will meet the expectations and hopes of the business owner. Often the most important goals are to keep the business and family together.

If not effectively dealt with, this issue can cause a great deal of conflict and disharmony among active and non-active family members. The guiding principle is to remunerate active family members fairly (not necessarily equally) so that their remuneration reflects, to the degree possible, fair market values (i.e. what a non-family member would be paid to do the same function). Benefits and what constitutes ‘benefits’ is an even more contentious issue in family business. Family members pay close attention to what each is receiving and make their own interpretations of the fairness of these benefits, unless, of course, there is a clear policy that outlines who is entitled to what and why. How remuneration will be determined today and in the future needs to be clearly understood and agreed upon by all family

 Commit to having a safe, open and objective process to uncover all the issues.

 Give everyone a chance to have their say and express their thoughts and feelings, privately and repeatedly.

 Hire experienced and objective advisors to help you develop the plan, and give them access to all the principal players, including your family members.

 Listen. Consider. And listen some more.

 Consider all the different opportunities and choose the one that is best for your circumstances.

 Prepare yourself.

 Prepare your successor.

 Prepare the business.

 Prepare your family.

 Involve your successor in the planning process.

 Involve your family in the planning process.

 Do the succession plan as part of an overall estate and retirement plan, including your will.

 Make sure your successors and the business have been objectively assessed by independent third parties.

 Get your business valuated – know what an arm’s length party would pay for your