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Succession Planning

Don't Wait Until It's Too Late

“King Lear, Pygmalion, the Old Testament, Greek tragedies. If you substitute the nouns and verbs, you could write the family business owner's story. His problems are the problems of humanity, and the business funds and fuels them. It's a family passion play, with the business founder center stage, usually all alone," observes Leon Danco, author of "Beyond Survival," a manual for small businesses.

But it doesn't have to end in tragedy. If business owners are willing to start early, and engage in a deliberate process, they can ensure not only the future of their businesses, but the best interests of families, employees and customers.

Here is some advice gathered from experts on the subject:

Break the decision into three main issues: Management, Ownership and Taxes.

• Management:

  Put aside emotions. What's best for the future of your business and your family? Are family members actively involved? Is there one who is best suited for the top spot? Don't make unilateral assumptions. As the story of Lydia Stewart shows (see "When It's Your Name Is on the Door"), assuming an eldest son or daughter will take over may shortchange talents and aptitudes of other family members.

  Business owners often make decisions single-handedly. But in this case, it's a recipe for disaster. Start by listening to what your heirs want. Without their buy-in, any succession plan could be doomed.

  Speak frankly with key employees about how management transition might affect them. Including them in the process will help them accept and support the outcome.

• Ownership:

  If the business stays in the family, how and to whom you transfer ownership is critical. The designated successor will need authority and control to lead. It may require a corporate structure that gives greater voting power to those who are active in the business. Don't handicap your successor's ability to manage by creating an unwieldy ownership structure.

  If no next generation family member is interested or capable of running the business, it might be time to consider selling it, perhaps to employees.

• Taxes:

  When a business owner fails to plan for taxes, the business and business owner often die on the same day. Estate taxes eat up to 55% of the estate--often forcing the liquidation of the business at fire sale prices. Everyone loses. That's why you need to plan the transfer of the business while the owner is relatively young, through gifting or other devices. Life insurance may be needed to provide ready cash for estate taxes and other expenses. What you can't do is "wait and see." It's likely that attitude will result in "too late."

Succession planning is not a one-person job.

It needs input from an entire team of professionals, including your attorney, accountant, estate planning expert, and banker. It requires candid, often uncomfortable discussions with family and employees. And, it results from a flexible, open-minded and even creative approach that honestly addresses your entire family's needs.

For more information about succession planning, visit:

http://dept.kent.edu/oeoc/spp/articles/lasttest.htm

http://www.sba.gov/gopher/Business-Development/Success-Series/Vol7/success.txt

http://www.utfamilybusiness.org/ResourceCenter.asp

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