Where’s a familiar cartoon in which the windows of a family retail operation are covered with posters proclaiming, “Going out of business! Everything must go! Bankruptcy imminent!”
Standing across the street, the business owner points to the store, puts an arm around his heir and says, “Son, this will all be yours someday!”
If you don’t have a succession plan, this could be you, says Robert Cohen, president of Centrus Group Inc., an Akron turnaround and crisis management company. Cohen says that if a family business is worth passing on and the heirs want to keep it going, the owner should start preparing his successors early.
“You must first determine if your successors are prepared to run your company. Do they have a love and appreciation for the business? Have they had the right experience and education?” Cohen asks.
The owner must also decide when he or she plans to relinquish control of the company and plan accordingly.
“If you plan to retire at age 60, you need to have someone in place at least three to five years before that. You must also be realistic about your longevity. If there’s a family propensity to die at age 50, you should plan to have someone in place by the time you’re 45,” says Cohen.
But, what if the heirs want nothing to do with the family business?
“If your kids don’t want the business, or if they’re just not ready to run it, your answer should be to turn your company over to professional managers you can trust. That way, residual income from the business can be distributed to your family members, and that may be the best legacy you can leave them — and your employees,” Cohen says.
And what happens to the employees if the owner is hit by a bus?
John Finnucan, a partner at Bruner Cox LLP in Canton, says if there’s no contingency plan, the business could die right along with the owner.
“If there’s no contingency plan in place and no management team to take over, that could negatively affect employees,” he says.
Employees’ fringe benefits, such as health care packages, could be dramatically reduced. Their pension plans could be liquidated. Their salaries might decrease because the business is not operating profitably. Eventually, the company might be sold or go out of business, and employees would lose their jobs.
To keep the business going and safeguard surviving employees, Cohen and Finnucan advise putting a contingency plan in place that includes the following:
1. A qualified employee management team should be appointed and empowered to act without the owner.
2. Make sure there’s a buy-sell arrangement in place that allows the deceased owner’s estate to be paid the fair value of his business interest.
3. Ensure that the company is financially stable so the management team can continue to successfully operate the business.
4. Leave enough assets in the corporation to provide adequate collateral for working capital.
5. Have a communication plan in place to assure the customer base, the suppliers and the employees that the business will continue to operate successfully.
How to reach: Bruner Cox LLP, (330) 497-2000; Centrus Group Inc., (330) 864-5800