If you own a family business, the term “succession planning” shouldn’t sound foreign. Without a solid plan in place, your company’s future could be jeopardized. According to Fred Rock, chairman of the Manufacturing Services Group, a Pittsburgh-based consulting firm, here are 10 dos and don’ts to help ensure your family-run business survives well into the next millennium.
1. Don’t delay planning for succession until your 100th birthday.
Start planning now, so you can groom a successor and ensure the company will survive if something happens to you.
2. Don’t hire Mark McGwire to ride your horse in the Kentucky Derby.
That’s the easy way of saying don’t count on turning over your business to a son or daughter who doesn’t have the skills, experience or desire to run the company. Consider creating assets outside the business for family members who aren’t realistic candidates.
3. Don’t try the sink or swim method during a hurricane.
Make sure family members who have the talent and desire to run the business get lots of training and experience before they take the helm.
4. Don’t let “The Waltons” become “Family Feud.”
Evaluate whether keeping the business would bring the family together … or pull it apart.
5. Don’t expect family members to take the heat in the kitchen if they would rather sun themselves on the beach.
Selling the company while you are still running it should bring the highest price. Just ask Richard Jacobs. You also might find that dividing the proceeds is the easiest option, and your family might well prefer getting the money. You might, however, also want to look into creating trusts to protect the proceeds for subsequent generations.
6. Do turn in your Lone Ranger mask.
Keep family members and company managers informed so together you can plan for succession. A board of advisers is one option. It can provide insight, support and continuity.
7. Do consider adding golden handcuffs to the management dress code.
If younger family members are interested in, and appear capable of, taking over the company, they may need good managers to assist them in learning the business or running it.
8. Do remember that even Thanksgiving dinner sometimes ends in a family tiff.
Structure the business to minimize family conflicts, rather than creating factions with different interests. Consider issues such as voting versus nonvoting stock or preferred stock, restrictions of sale to stock to keep the stock in specific family lines and reasonable options and formulas to allow family members to sell their stock at a fair price while still protecting the liquidity of the company.
9. Do realize that sometimes breaking up isn’t hard to do.
Some businesses can be split into separate ventures. This allows several qualified family members to get fair value, yet operate separate companies.
10. Do accept that creating a succession plan is like planting a garden.
It takes time to plant and grow, and it will change with the seasons. Get guidance from CPAs and attorneys experienced in succession planning and start the process early. Revisit the plan periodically and revise it if necessary.
