As noted in the first blog in this series, it takes a deliberate effort to plot out a business succession strategy. Transitioning out of your company and moving on to the next phase of life—whatever that may entail—requires balancing a number of family, financial and strategic considerations. While there are many ways to approach the task, the one customized to you and your family’s personal wealth-building goals and needs, your vision for the business and your personal financial wellness, is always best.
While you’ll need the help of a strong team to cover all bases—from internal leadership in your company to trusted advisors such as experienced lawyers and accountants—you’ll also need to look at the process from a personal financial perspective.
Work with your wealth management team to analyze both your personal financial circumstances and the potential sale price for the business (more on the financial side of succession in our next installment) to understand how and when you can potentially exit—and for how much. The value of that eventual sale may indelibly shape your post-retirement fortunes, so it’s not hyperbole to say that the right exit timing (and devoting the time to find the right buyer) could have a significant impact on the rest of your life.
It’s a process that’s not to be taken lightly. Nor is the family side of succession, if a sale or transition to children is in the cards.
All in the family
The most important part of developing a family business succession plan is, well, involving the family.
The goal is to lay out that aforementioned plan and make the transfer of your business as seamless as possible. Unfortunately, this part of the process often happens in a vacuum. There are many instances where business owners have died—often suddenly—and their adult children realize they’ve just inherited the family business, whether they wanted it or not.
That’s why transparency is critical. This can be a highly emotionally-charged process, so it’s best to take the time to lay out a logical strategy for the business transition, build a case as to why you think it’s the best one for the company and your family, and then share your thoughts with your loved ones. If you don’t think your kids have the leadership chops to take over, make it clear why that is the case. Liquidating the business or even selling to employees through a structured, multi-year sale (which you may have to finance) could be best if a transition to family isn’t an option.
That could involve nurturing talent within the company over time and grooming a successor to one day take the helm. Many entrepreneurs also opt to bring in a professional from outside the company with strong qualifications, someone who can bring a fresh approach and the right experience to take the business to the next level.
Is handing the business to your kids the right move?
If your children do want to take over the business, ask yourself some key questions: Why do they want to run the business? Operating a company is just as much a lifestyle choice as it is an entrepreneurial one—and it’s not for everyone. If they’re not committed to the company’s success, or building on your legacy, their ascension to the ownership ranks could fail.
Do they share your vision and values for the organization? If not, they could compromise your corporate culture as soon as they assume a leadership role.
Do they have the expertise and experience to do the job? If not, it’s important to prepare them by ensuring they have training in all aspects of operations—from marketing and logistics to sales and everything in between. Make sure they can have the opportunity to build relationships with existing clients and gain confidence in acquiring new ones. The same could be said of grooming a successor from within the company.
If you have several children and only one wants to carry the corporate mantle, then consider finding ways to split voting and non-voting shares to make the others whole financially—or compensate those not involved in the business. Doing so can be an effective strategy to help mitigate the risk of sibling conflicts once you’ve retired or passed away. Be sure that your wishes are stated in both your formal succession plan and your will—and that both are updated regularly.
Remember that there’s a plethora of points to consider when building an effective business succession strategy—and the need for one creeps up faster than most entrepreneurs expect. It’s critical to take the time out from building your business to think about how you’d eventually like to walk away from it.
The Bridgewell Team
Contact a member of the Bridgewell team now to discuss your business succession and personal financial planning needs.