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Business values are different from family values. In a family run business, the need to continually improve productivity, profitability can lead to increased competition amongst siblings and that may impact family life.
And in a business succession, in which you pass your business on to the next generation or even to other interests, the process can be stressful and divisive—unless you do it properly.
Through family consultation, understanding and planning, your business can continue to generate returns—both emotional and financial—for your family for many years to come.
Business succession is a process
A properly realized business succession will probably take a number of years to complete. It can be years before family members are ready to assume leadership positions within the company. Running the company may not even interest them.
You will need to weigh the interests and abilities of a number of possible successors (both inside and outside the family) and train them.
There are also personal and business tax considerations, and you will need to erect the proper legal framework.
Getting started
From the outset you should be considering how the hard choices to be made will impact your spouse, your children, your relatives and business partners. Perhaps the most important thing you can do is make sure the entire process is structured and open.
First, make sure everyone in the family is aware that you are planning the succession and give them a time horizon.
Next, make it easy for everyone in the family to express their concern for, and interest in the business. This has to be done before you develop the succession plan in any detail. If not, the plan may lack legitimacy in the eyes of some family members and become a source of conflict.
There are many ways you could involve your family:
- Sound them out during a family retreat or in one-on-one sessions
- Hire an outside consultant to interview family members. They may be more willing to talk to an impartial outsider than to you
- Create a family council to develop a common vision and help draft the succession plan
The succession plan should include input from your legal and financial advisors as well as family members. Make sure the plan addresses the following issues:
- Interests and capabilities of each family member
- Each person's role inside (or outside) the business
- Time and resources for the training of your successor(s)
- Fair treatment for everyone
That final point could mean the provision of funds for family members to start their own, separate businesses.
Possible outcomes
There are many avenues that the succession process can take and they vary according to your situation. A family board of directors can be set up to include non-family members who will help make sure the council acts in the best interests of the business.
Where family members are not ready to run the company, an interim chief executive can be hired to do so. Where the business is large enough, and the successors mature enough, the business can be split into autonomous divisions. If it's large enough, the business can even be turned into a publicly traded corporation with shares that can be sold off at regular intervals for the benefit of your estate.
You can also create a family trust to which your shares are transferred when you retire. These shares can then be invested in a life insurance policy.
Or, the business can be sold to outside interests with the proceeds going into an estate that benefits the family.
Get outside help
As you can see, the legal issues and tax implications are complex and you may want to consider using outside consultants. They can help you determine the following:
- value of your company, its receivables, and potential debts
- roles will be shared among the heirs
- whether or not they will be hired by the company
- who will coach the successor
- the company's strategic vision
- how to draft a shareholder agreement
- role of the family council
- the ideal scenario for the outgoing leader's departure
- the succession's tax implications and how to reduce them
BDC's succession planning consultants can help you realize a succession strategy that's right for you, your family and your business.
A well-planned succession will turn your family into a group with decision-making powers and common interests to defend and is essential to the continued well-being of your family—as well as that of the business.
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