All in the Family: Succession Planning to Keep Your Business at Home
Charles A. “Chip” Gentry
The family business is an American tradition. It flows from a long line of ideals our wonderful country was built on: the ability to create something great and pass it on to future generations. In small towns across the United States “Father and Sons Inc.” signs are present up and down Main Street. Mothers and fathers often teach their daughters and sons the tricks of the trade. If done properly, the business often remains family-owned and operated. Unfortunately, many of these operations fall by the wayside due to poor planning and a failure to map out a formalized succession blueprint.
TWO ESSENTIAL STEPS
A recent survey published in Business Law Today found that 69 percent of family-owned businesses expected ownership to remain in the family, but only 23 percent had sufficient transition succession plans in place. While many more intricate details factor into the equation, ensuring your company remains in the family essentially requires two things: legal planning and people planning.
The legal planning is obviously where an attorney like me comes into play. Most importantly, I encourage my clients to be proactive and start the process early. Health issues are unpredictable, and the economic climate can shift in an instant. A client who plans to retire from the business within ten years is infinitely easier to deal with than having them inform me that they retired five years ago and things aren’t going as smoothly as they had hoped. What typically happens is an unexpected illness or other challenge has accelerated the succession planning needs. An early start to the process presents infinitely more options and outlets to ensure a successful transition to the next generation.
The people planning aspect is where you come into play. I’ve advised businesses that have monthly or quarterly meetings on the status of ownership and the functioning of the business, and I’ve also advised ones where the owner hasn’t discussed business matters with family for 20 years. One side is often ready to retire while the other is ready to begin their working career. Training is key, not only in your operations, but also in areas such as leadership and money management. You didn’t have to deal with computer programming, websites and other technological tools when you started or inherited the business. They do. Assuming your son or daughter plans to take over the business, remember that they likely have their own unique vision for the future. The family itself is the only constant of this business. As the owner, you are in charge, but make sure the next generation is heard and that their needs are listened to and their concerns are addressed. The biggest risk I routinely see these companies fail to account for is what hap-pens two or more generations down the road. Your hard work today for solid succession planning will pay off for later generations to come.
KNOW YOUR STRATEGY
While a successful succession plan likely requires the filing of some complex legal documents, a second essential element is open and candid communication between the owner and future owner. The starting point to ensuring a smooth transition begins with two basic questions: What do you want to see happen with the business, and when do you want to see it happen? The answers will determine the entire succession strategy. An early start to the process creates more open windows to a bright family business future. Reach out to all of the important advisors for any successful plan: legal, financial, tax, estate and charitable planning are all part of the mix. The sooner you have a plan in place, the sooner you can maximize its likelihood of success.
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