Putting the right succession-planning team in place
July 21, 2022Although no two family-business succession plans look the same, one thing is true of them all: putting together an effective succession plan is a complex task involving many emotional, financial, legal, and strategic elements. That means family-business owners can’t go it alone: they need a team.
The succession team starts on the family side
At the core of the succession-planning team are the current business owners. It is their retirement plans and timeline that determine when the succession will happen, and their long-term vision for the company that dictates whether the business will be transferred to family members, internal executives, or an outside buyer. As well, the succession plan will need to coordinate with the owners’ personal goals for wealth management and legacy, as laid out in their retirement and estate plans. Thus, the owners need to be fully on board with the succession-planning process for the other team members to do their part. Even business owners who don’t have an end date in mind for their working years must put a succession plan in place in case something should unexpectedly happen to them.
Family members form the rest of the team’s core. This especially means the ones who are active in the business, but it also includes those who are inactive shareholders and even those who are not involved with the business in any direct way. Why? Because family relationships play by far the biggest part in whether a plan will go smoothly. The best financial experts in the world can’t make a succession plan work if family members are in conflict with each other, unhappy about elements of the plan, or in the dark until the transfer is a fait accompli.
A certified Family Enterprise Advisor (FEA) can help to manage the family elements of succession. These professionals have specialized training in working with family businesses, including the often-delicate interactions between family members. On the succession-planning team, an FEA can be an effective liaison between owners, family members, and the board of directors.
Rounding out the family side of the team are family-business coaches and therapists. Although many owners may view such experts as unnecessary, research shows that up to 95% of succession failures stem from problems in family dynamics. This makes family professionals among the most important members of a succession-planning team.
The board of directors and advisory board can get the planning underway
Owners and active family members may set the agenda for the succession plan, but it is often members of the company’s board of directors and advisory board who have the high-level view and personnel resources to start executing the planning process. Independent board members, especially, can be valuable in bringing the team a balanced perspective on the needs and goals of owners, family members, other shareholders, and the business itself.
Financial, insurance, and legal experts are must-haves in the planning process
The financial and legal elements of a succession plan are complex and highly technical. Only trained professionals with experience in succession planning should be entrusted with putting together these aspects of the plan.
Tax professionals such as tax lawyers are needed to help minimize the tax hit resulting from the sale or transfer of the business, both to individuals and to the company. While many think of family businesses as small “Mom and Pop” outfits, in fact the median annual revenue for a U.S. family-owned business is $9 million, while some at the higher end of the scale report revenues of more than $1 billion. The sale of such an asset can trigger significant tax liabilities.
Also working on the tax and financing side are life insurance experts from firms specializing in intergenerational wealth planning. The unique tax exemptions conferred upon life insurance policies can make them by far the best option for financing the transfer of ownership, as well as for retaining and growing wealth before, during, and after the succession process. Life insurance experts can be brought onto the succession-planning team while the first iteration of the plan is being drawn up, and should be consulted for each of the plan’s reviews and updates.
Since a succession plan has many legally binding components, the planning team must include lawyers with extensive experience in private-business succession and intergenerational wealth management.
Finally, a temporary member of the succession-planning team is the Chartered Business Valuator. She or he will provide the official assessment of the company’s value, which the team will need in order to set up financing, manage tax reduction, and ensure that all the team members are starting the decision-making process with shared and accurate information.
Assembling the team is a great first step to succession planning
There is no getting around it: succession planning is a major undertaking, one that involves uncomfortable emotions, tough decisions, and a daunting array of components. But, as the saying goes, “A burden shared is a burden lightened.” Putting together a team is a great way to push through that initial feeling of overwhelm and get this vitally important task started.
For more on this topic, read TTSG’s whitepaper 7 Steps to Creating an Effective Family-Business Succession Plan.