Exit Options: Family Succession
Exit Planning Tools for Developing a Realistic Family Succession Plan
Family succession is a special subset of exit planning for business because family businesses include layers of additional complexity. The pressure of daily decision-making and implementation in a family business can add tension to every situation and especially to those associated with a transition.
There are multiple strategies to consider which include tax ramifications on the business, the sellers, the buyers, and the non-business children or other relatives. If you are considering charitable giving, the transfer of the business may be an excellent time to use charitable deductions to defer taxes on your business value.
Family Succession planning must consider all of the critical areas associated with the transfer of the business, including:
• Corporate governance and authority through the transition
• Inheritance limitations
• Preparing offspring for management
• Decision making processes between multiple children
• Debt and the family psyche
• Risk management through the course of implementation
• Dealing with non-family key employees
• Balancing inheritance with business value
The three circles refer to the engagement of multiple family members in the business which include a blood (or marriage) relationship, family members participating in management decisions, and at least one with an ownership stake. All three must be present in order for it to be considered a true “Family Business.”
When all three factors are present, they set up a structural conflict that is challenging to deal with. The change in one body not only alters its effect on itself, but subsequently alters the effect on the others.
When there are only two roles to consider, effects are fairly predictable. If only one of the family members has ownership, the roles are pretty plain. If other family members have ownership, but don’t work in the company, their input can be anticipated. But when family members hold two roles in the business, both employee/manager and ownership, each action in one area causes unequal and unpredictable reactions in the others.
The pressure of decision-making and implementation in a family business adds complexity to every situation. Family members know each other too well to make a completely unbiased analyses. The best you can do is recognize the three circles that influence every action especially when considering a transfer.
The ExitMap® Assessment for Business Owners
The First Step to Understanding the Complexities of Preparing a Company for Transition
The ExitMap® Assessment questionnaire consists of 22 questions and produces a high quality 12-page summary report which will be emailed to you. The report ranks the overall preparedness of a company for transition and provides a breakdown of the four major categories of readiness; Finance, Planning, Profit/Revenue and Operations. If you are a business owner just starting to think about exit planning or if you just want to know where you and your company stand, this is your first step.