Your Business Succession: How To Plan For It

You have spent a great deal of your lifetime building a business. Now you are ready to transfer the business to a younger generation. This Financial Guide discusses some of the unique issues in planning for and implementing the transfer of the family-owned business.

What Makes The Family Business Unique?

This section will explore the nature of the family business as a dual operating system and will identify issues of greatest concern to family business owners, as identified by family business owners across the United States. As you review these issues, you will see that, although you and your family are unique, the challenges you face are not, because almost every family business shares the same problems.
Also, perspectives of the individuals involved in a family business will be presented. We tend to confuse personality with perspective-understanding the viewpoints of the different actors involved in the family business (active and non-active) can help alleviate conflicts that may arise.

Issues in the Family Business

The list below contains the issues that most family businesses face:

• Participation-who can participate in the family business and under what circumstances.
• Leadership and ownership-how to prepare the next generation to assume responsibility for the business.
• Letting go-how to help the entrepreneur let go of the family business.
• Liquidity and estate taxes.
• Attracting and retaining non-family executives.
• Compensation of family members-equality versus merit.
• Successors-who chooses and how to choose among multiple successors.
• Strengthening family harmony.

All of these issues and the others you include in the Family Business Assessment Inventory can potentially cause business conflict and family stress. But there are three steps you can take to manage conflict and stress in a family business:

• Identify issues that may cause conflict and stress.
• Discuss these issues with the family.
• Devise a policy to address them.

A discussion of policy making, as well as establishing a forum conducive to it, will be addressed later, in the section Family Retreat.

Strategic Planning

When conflict occurs in the family business, it can be traced to a disparity in the goals of the individuals, the family or the business. Perhaps a family member works in the business out of economic necessity, not because he or she wants to. Or perhaps the potential successor has plans for the business that differ from current management plans-different generations usually have different goals. Whatever the cause, the conflict must be addressed and resolved to avoid and prevent more serious problems later.
One way to define and align family and business goals is through business and family strategic planning. In these plans, you will create a mission statement for the business and for the family that allows each element to complement the other. Once you have completed this task, set goals for the family business that will allow the family and business to prosper. Next, develop a strategy to accomplish these goals and, finally, formulate policies and procedures that control the family's involvement in the business.