Business Transition Planning
There are issues common to most, if not all, family run businesses that must be addressed before strategy design and discussion about succession, regardless of the scope of the engagement. Critical to any discussion of the succession plan is the division of assets among family members. Will ownership be divided equally among all children? Or will the business pass to some and not others? Will the children govern equally or will there be voting vs. non-voting ownership interests?
There is also potential conflict between the future active owners and passive owners. The family members actively running the business may feel (or develop) resentment that they are “doing all the work” but having to share with the non-working family members.
If there is a surviving spouse, he or she will likely want (or need) to continue receiving cash flow from the business. If there is no surviving spouse, or upon the death of the surviving spouse, the heirs may need income. Since there is no ready market to sell the family business if the heirs want to cash in on their inheritance, alternate exit strategies must be discussed and built into the succession plan.
Conflict may also arise over control and management issues. There is potential for friction between working owners and non-working owners. Some family members may see an “entitlement” to participate in the family business even though they have neither the expertise nor interest in the business. The desire to be in charge could lead to disastrous family conflict that could so disrupt the family and the operations of the business that the business fails to make it past the second generation. Unfortunately, this occurs more often than not.
If the business is being transferred to the next generation during the lifetime of the owner, the transferring owners can often maintain an orderly transition and see that the transitional hurdles are overcome. But the succession plan must also account for the death of the owners. In this context, death equals disruption. Ownership may pass to family members not qualified to run the business or to spouses outside of the family. Financial institutions may become uncomfortable without the owner at the helm. Surviving owners may not want heirs of the deceased owner to become involved in the business. This could occur where the surviving owners are not related to the deceased owner, as well as situations where the surviving owners are related (e.g., the siblings of the deceased owner). Conflict can arise where the uncles want their family to participate in the business to the exclusion of their nieces and nephews.
We understand the importance of the continuation of your family business and legacy for future generations. We are here to assist you with a coordinated plan and guidance to ensure that this legacy will be a lasting one. Give us a call today so we can discuss the right plan for you and your family.