Family businesses are the backbone of our economy and their future success is critical. Over the years, many successful family business owners have told me that they have not completed a proper succession and estate plan.
They could be just too busy with their business and their families, confused by inconsistent advice and opinions, unsure where to start, worried about the costs, still having essential conversations with family and key employees, jaded by past experiences, or simply not ready to let go.
If business owners don't know their goals or the goals of their family, they see no reason to start a succession plan. That's quite a dilemma; if a family business owner doesn't know his or her own goals now, why would they think that putting succession planning off for another month or year would change anything in the future?
The fact is that inter-generational transition only comes along once a generation. Therefore, most family businesses don't have a track record in terms of succession planning to get them started. They don't know what to do, what problems might arise, how to resolve delicate issues, and have no experience with family business best practices.
If it was simply an operations issue, most experienced family business leaders could deal with the process and get on with things. But since succession issues come along so infrequently, what worked for dad or grandpa may no longer be relevant today. Owners don't know where to start their succession planning, and so they just don't start at all.
There is a long list of common reason for putting off the essential task of succession planning:
- Failure to understand that succession planning is not the same as an exit strategy
- Failure to obtain a proper valuation of the business
- Failure to integrate the business succession plan with the estate plan
- Failure to plan for the Four D's: Death, Disability, Divorce, and Departure
- Failure to identify key employees who should be part of the succession plan
- In the case of closely held businesses, treating it like a family rather than as a business involving family
- Failure to diversify the business owner's net worth from the business as a whole
Then there's the future generation. The biggest obstacles that future generations need to overcome are gaining the right experience, acquiring business knowledge, developing new ideas to help the company compete and overcoming entitlement issues.
There is no quick and easy answer or solution. However, in most successful inter-generational transitions or sales to a third party, owners have taken the necessary business succession and estate planning steps to minimize conflicts, minimize estate and income taxes, and ensure that the business is in the right hands to maximize the chances of its future success.
Engaging a professional for comprehensive business succession and estate planning is the best way to improve the odds that your company will continue after you are gone. Moreover, if a family member is not going to run the business when you are gone, then plans must be made for the family business to be sold to a third party, either when you exit your business or in the event of your death.