BUSINESS SUCCESSION PLANNING-FOUR QUESTIONS EVERY BUSINESS OWNER MUST ASK BEFORE YOU MEET WITH A LAWYER
Business owners are usually strong aggressive individuals who deal will all types of people on a daily basis. However, when they come to see a business succession planning attorney like me, they are often intimidated and apprehensive. In this article you will learn some of the questions that you should have already asked yourself before consulting a business succession attorney. It is suggested that you watch this video on funding a business succession plan before seeing an attorney.
1. Is the Business Worth Continuing After Your Disability, Retirement or Death?
The first question when considering business succession is the issue of whether the business is worth continuing after your disability, retirement or death? Many businesses are run by a dominant owner, is that you? If so, it is likely that regardless of the current earnings, market conditions and position of your company in the marketplace, the company will not continue in the future to return the same earnings and increase in value in your absence. Each business situation will be unique, and requires a thorough analysis of the future potential of the business without the dominant owner in determining whether establishing a continuation planned is worth the cost and emotional drain on the current owners and their families.
2. If Your Business is a Family Owned Business What Additional Issues are Involved in the Transition?
As a discussed in other chapters, the planning process and ownership transition can be daunting. However, the process of management transition planning can be even more difficult. Whether it is before, during, or after the ownership transition plan is being designed and implemented, a management succession plan will also have to be developed and implemented by the existing owners. One of the first issues that you must resolve is sitting a timeline for a management succession plan.
You with other current owners, working with advisers, will establish a management transition plan. Thereafter, the owners will need to communicate the management succession plan to key employees, management, and in certain situations to the non-key employees.
If your business happens to be a family business, the challenge is heightened. In that case you will have to communicate the management succession plan to both family members active in the business and to non-active family members. This added complication can create conflict and other issues regarding inheritances, equality, and liquidity to fund non-business children inheritances by providing a fair share. My clients usually want to treat all their children fairly. They are not sure what is fair and have to reach that decision first. Then, when they have children who make a living in the business and other children who could care less about the business, the challenge becomes one of where do the non-business assets come from to take care of the non-active children.
Other issues which will need to be addressed are employment of family members and their spouses, compensation for family members and non-family members, training for new owners and management, the amount of control to be retained by the current owner during and after the transition, the role of non-family members in business decisions, and development of a system for conflict resolution between active and non-active family members. One reason clients come to me for help, is simply that they do not have the resources and time required to do succession planning, while trying to run a successful business.
Many times clients will face issues related to control, sibling rivalries, equality, love, money, and taxes, not to mention the owner’s own mortality. The overlap of family and business relationships can make the task of grooming a successor from within the family much more difficult than grooming an outsider to take over. While the goal of planning is to provide the maximum net value to the heirs, it is also to develop a plan that preserves family harmony so your family doesn’t have to swim with the sharks.
3. What is the Plan for the Transition of Top Management and Key Employees?
Creating a succession plan for the transition of top management key employees is vital to the overall success of your business transition to new owners. The implementation plan for key management transition is not a plan that can be delayed until you are ready for retirement. Unexpected death, disability, divorce or bankruptcy could create a management void that would jeopardize your business. You must have a plan on how successor management will be trained and given the responsibility for business decisions prior to your voluntary or involuntary departure. If today you do not have a qualified replacement, then you must have a plan and start to implement it now to ensure your successor will acquire the technical expertise and skills needed to take control, when you leave.
4. How Do I Identify and Overcome My Unique Communication Challenges for Management Transition?
In developing a management succession plan communication is the key. As the plan is developed you will want to include key employees and get them onboard with the transition plan. This will calm their fears and motivate them to increase the business value.
In the case of a family business, meetings for family members are for those family members working in the business. These meetings incorporate family and the business issues.
If your business is a family business additional meetings will have to be held with the non-active in the business family members. The business succession will not only affect the business, the financial and control issues of the business owner, but will also affect the liquidity, cash flow, emotional transition and inheritances for family members. This is why the team approach with different advisors is recommended because of the subjective and objective issues you will have to resolve.
Effective communication with both the active family members and the non-active family members is an essential element of any succession plan. The sooner the plan is designed and implemented, the smoother the transition will be for you, active and non-active family members, and key non-family member employees. Early and complete planning increases the chance for a smooth transition and preservation of family harmony after your disability, retirement, divorce, bankruptcy, or death. Start now, it wasn’t raining when Noah built the Ark.
Business Succession Planning- Getting Answers to All Your Questions
Russ Pike is an engaging speaker, author, and passionate estate and elder law attorney. Russ is known for understanding his client’s needs and explaining complex areas of the law in a way that non-lawyers understand. Russ helps his clients by providing strategies and plans that will not only minimize taxes and protect assets, but will also ensure that wealth is transferred to the person intended. Russ works closely with families to minimize the occurrence of those situations you have heard about where family members are at each other’s’ throats over their inheritance. Russ is the author of two books, “Estate Planning for the Not Yet Wealthy” and “I Wasn’t Ready Yet! Survivor’s Guide to Handling a Loved One’s Estate.”
If you would like to learn more about the planning options available to you, pick up the phone and give Russ a call at 503-888-0952 to schedule a free consultation. During the consultation, which usually cost $295, you will have all your questions answered and receive at least one actionable strategy that you can implement.