Effective Succession Planning: Expecting the Unexpected in Your Family BusinessBondBeebe
Posting by Geoffrey D. Brown, CPA
Last week, I had the pleasure of speaking to the Exit Planning Exchange’s DC Metro chapter regarding the unexpected events that can complicate effective succession planning. I had the opportunity to talk to several advisors about the issues they have seen family businesses face, and also heard some fascinating stories – both positive and negative.
I chose to speak on “Expecting the Unexpected” because I have seen so many family businesses fail to plan for a variety of scenarios, and the end result is less than optimal for both the family and the business. While it can be depressing to plan for situations such as disability and catastrophe, it is necessary to perpetuate the business and your family’s wealth.
What Unexpected Issues Should I Expect?
When planning for the future of a family business, many owners plan for what happens when they die. But, that is only one of many scenarios that can create a crossroads for a business. You also need to plan for and think about disability or incapacitation, the death of an heir, sibling rivalries, divorce, changing market and economic dynamics, and a host of other issues.
I’ve seen a number of these scenarios occur over my decades of experience. In one case, my client’s son committed suicide, and the father was forced to deal with the issue of business succession while he grieved this loss. At a past Alliance event, Mallory Walker of Walker & Dunlop shared how he overcame a potentially contentious situation with his sisters to become the sole owner of the family business. In one of our most recent posts, Paul Phelan shares the story of a business owner potentially disabled by a heart attack, and the challenges that this creates for his business.
There are few guarantees in life, but I can guarantee that something unexpected will happen during the lifespan of your business which will force you to pause and adapt.
Effective Succession Planning for Family Businesses
Until a crystal ball is invented, it is impossible to predict what challenges your business might face over the years and throughout generations of family leadership. Ensuring that your family business and your family successfully weathers potential storms is all about the planning and structures you put in place. Here is how your family and your business can be prepared for whatever may come your way:
Governance. This is an often overlooked area for many family businesses. Successful governance helps to create structures that can guide your business through important decisions and difficult conflicts. Institute a board of directors with individuals from outside the family to augment your family’s skills and knowledge and to offer an objective point of view. Consider a family constitution to lay the groundwork for interactions and communications.
Transparency. Do your family members understand how decisions are made? Is the next generation of leaders informed about the financial situation for your company? Transparency allows you to educate important stakeholders and family members regarding your business and can help younger leaders and family members understand how important decisions are made.
Communication. You may be distributing your financial statements, and everyone has heard that your daughter will take over the business, but have you talked about emotions or expectations? Open, clear communication is the single most important feature of effective succession planning. Ensuring open communication will help to uncover conflicts that may be boiling underneath the surface, and will help increase buy-in for bigger decisions.
It’ a cliché, but in family business, it’s essential to hope for the best, but plan for the worst. The full presentation for yesterday’s seminar is available below.
Thank you to XPX DC Metro for hosting a great session!
Webinar: Effectively Managing Leadership Transitions
– See more at: http://dcfamilybusiness.com/effective-succession-planning/#sthash.d6yaByIB.dpuf