Family Business

James Lea is a professor at the University of North Carolina at Chapel Hill and a nationally known family business speaker, author, and advisor. You can send comments or questions to him at james.lea@ yourfamilybusiness.net.

In succession planning, do it as a family - with guidance

Occasionally, I hear from a senior family business owner who's looking ahead to retirement. "Please recommend a lawyer," the owner says, "to draw up our family business succession plan."

I then take some time to explain that while a qualified legal advisor should always be involved in succession planning, it's never wise to outsource the whole process. Families should do the succession planning themselves with expert guidance, facilitation and technical input as they need it.

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Sometimes the inquiry reads like this: "Please recommend an accountant to work out the finances and tax implications of transferring ownership of our business to our children."

An experienced accountant is a valuable member of the succession-planning team, of course, but the financial aspects of planning for family business ownership continuity are usually tied closely to family relationships, expectations and priorities.

An accountant can do the rows and columns calculations and protect against unnecessary tax exposure. But if the human dynamics aren't worked out first, no amount of accounting skill can move the succession process forward.

Or I might get this message: "Please recommend a financial advisor to set up a retirement plan for my spouse and me so we can turn over the business to our children."

This makes sense, because if there's no provision for the senior owner's financially secure retirement, the transfer of the business to the next generation is not likely to happen. Very few business owners will give up a regular paycheck without assurance of a continuing income in retirement. But retirement planning should be started long before the succession process comes up on the screen.

Capable expert assistance is always an asset to successful succession planning. But families in business should recognize that their succession plan has other needs if it's to produce positive, lasting outcomes.

• Goals: Like any other strategic plan, a succession plan needs clear and concrete goals. What do the senior owners, the successors, the family and the business want to achieve through the succession process? What should the family's business landscape look like when the management and ownership transition has been completed?
• Analysis of opportunities and challenges: What factors will work in favor of successful succession and what factors will have to be overcome? What do the succession planners have to work with? What changes must be made to capitalize on opportunities and minimize challenges? Pre-planning analysis of both possibilities and potential problems is important to guard the succession process against unpleasant surprises.
• Options: Some business-owning families beat their heads against barriers to successful succession because they focus their thinking too narrowly. A good succession plan considers several options for accomplishing the family's succession goals: a pool of qualified successor candidates, alternative timetables for making the management transition, or multiple options for financing the ownership transfer. The process needn't come to a grinding halt if one approach doesn't work out.
• Objectives: Each step on the road to successful succession should be defined by an objective. Going with the flow might seem the most comfortable way, but it lacks form and clarity. Setting and meeting objectives helps everyone involved to understand what has to be done to reach the succession goals.
• Processes: What processes should be put in place to oil the succession mechanism? Would an advisory group of family members, non-family employees and outsiders help to maintain focus and reduce friction? How about establishing milestones to make it easier to monitor progress? And don't overlook the value of procedural rules to keep everyone on track and moving ahead in unison.
• Plan B: Like any other important plan, a family-business succession plan should be developed and implemented with expectations of success. But unforeseen reality in the form of a dramatic business reversal or a severe change in family circumstances might rear its ugly head and undercut the plan's basic assumptions. The wise succession planner, while remaining optimistic, should have a Plan B in the bottom drawer just in case.
• Closure: Successful succession is put at real risk by a succession process that never ends. The passing of authority and responsibility and the transfer of ownership control somehow aren't completed. There are always a few more details to work out or the timing for the final passing of the baton is never quite right. Every succession plan should include clear provisions - conditions, dates, financial security and roles in retirement for senior family members - for closure. That's how families and their businesses enjoy success and satisfaction in ownership continuity and succession.