Handled properly, succession planning can be a seamless process that keeps family relationships close – during the transition and long into the future.
By Laurie Ingwersen, Divorce Financial Professional
Working with family businesses can seem like a daunting undertaking for family lawyers. Not only do they need to understand the fundamentals of the business itself and the family’s vision for its future, but they also need to work within the context of the underlying (often complicated, sometimes messy) family dynamics – especially when divorce rears its ugly head. Ownership, management, and family matters frequently intersect and overlap.
Each family business is unique in terms of the level of involvement of various family members. Some are deeply involved on a daily basis while others spend less time day-to-day but are still a part of the decision-making process. Regardless of who is responsible for running the business, the succession planning process needs to take into account all family members – including spouses, children, siblings, etc. – since wealth tied up in the business will ultimately benefit the entire family.
You must understand the long-term goals for the business and how those will impact the family. When the first generation is ready to exit, do they plan to sell to a third party? Sell internally? Have the next generation take over? If the next generation is to take over, will they buy out their parents or will their stake be gifted? Keep in mind that family members who are associated with the business may have been a part of it for a long time, may even have grown up in it, and each one might have their own plans for the business’ future.
Judicious Succession Planning
Realistic succession planning is the key to a smooth transition; it should include retirement dates, future ownership structure, management plans (including potential outside personnel), and more. Although a family business owner may not want to face the tough questions, doing so early can prevent, or at least minimize, uncertainty later on. The family should work with a lawyer who understands the complex issues that face family businesses, takes the time to uncover each family member’s individual goals, and then presents a variety of options to achieve them.
By outlining the objectives up front, you will be better able to define the scope of the relationship and set expectations for the entire family. You must view the business within the context of broader family relationships, including any underlying conflicts (every family has them); power struggles, issues of entitlement, and a reluctance to give up control are all common challenges. It is not your job to solve the family’s problems, but it is up to you to help organize the process, establish guidelines, and lead the family through the process. The better the relationship you establish with the family as a whole, the more you will earn your place as a trusted advisor.
You may require the expertise of outside professionals to complete the process. Business valuation experts, financial advisors, family mediators, and others can be crucial members of your advisory team, and having a vetted network of outside professionals to draw on as needs arise is invaluable. When handled properly, family-business succession planning can be a smooth and seamless process that keeps family relationships close during the transition and long into the future.
Laurie Ingwersen (CFP®, CRPC®, CDFA®, CBC) is a managing partner and senior wealth management advisor at The Harvest Group, a multi-generational family-owned business. She often works with clients and their attorneys to forecast the long-term financial effects of proposed divorce settlements. www.myharvestgroup.com
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