My work with family businesses involves the nuts-and-bolts planning and strategic marketing for long-term growth. A carefully considered growth plan will address the issues of the day while helping prepare the business to operate without the founder. This can serve as the comfortable first step in a broader succession planning process.
Sandra Harvey: Planning ahead is vital if you are going to have a successful ownership transition of your business. You have worked very hard to establish and grow your business. You have invested a lot of energy, sweat, money and sleepless nights. In order to protect this investment, you should not wait until you want, need or are forced to sell. You also want to ensure that your business is positioned to remain prosperous in the future.
For example, it is important to look at the overall corporate structure, internal business processes and documentation, personal investments, tax and estate planning, pension plans, insurance policies, and alternative exit strategies. Some factors can be handled in the short term, but to maximize the benefits, you may need at least one year’s lead-time. Ensuring your corporate structure is properly organized so that you can maximize any available capital gains exemption is the most obvious one, but there are many other tools that require at least one year to maximize their benefits.
Many owners are so busy with operating their businesses that they ignore tending to their personal affairs as well as the corporate and administrative details of their company. Find the right service provider who can help you co-ordinate all of these aspects. You should remain focused on operating your business, let your service providers take care of you and your family.
The key here is that it is never too soon to plan, but it can be too late to properly protect yourself, your family and your business. Our best sales are ones where we became involved well before the desired sale so the business assets could be maximized.
Question from Ingrid Philipp: Does any family business really survive the death of the founder?
Murray Gottheil: Yes! A family business whose founder makes it his or her personal challenge to make the business run independently easily survive the death of the founder. These founders do things right. They create corporate goodwill instead of personal goodwill. They train people to be able to handle every job in the company just as well as the founder can do it. They create redundancy in key functions so that the business is not reliant on any one person. They motivate employees, sometimes with equity participation. If children are to be involved in the business, they have an objective third party assess the capabilities of the children and they manage the expectations of the children so that a child who is not capable of being the president of the company aspires to a different role instead. They create a training program so that the children will succeed and have a non-family member mentor the children.
These founders also address issues of sibling rivalry. They choose a successor for each key role, and they make certain that the children all accept their place in the company. They create a shareholders agreement, and obtain the buy-in of the next generation to the terms of the shareholders agreement.
Furthermore, these founders make sure that all family members are treated fairly (but not necessarily equally), and this includes family members who do not work for the business.
These founders start working on their succession plan many years before they expect to retire and they adjust the plan regularly to meet changing realities. Their state of preparedness may go so far as to call a meeting of the family and the key employees, which would also be attended by the corporate lawyer and accountant, at which they rehearse exactly what would happen to the business and the family if the founder were to die suddenly.
Vin G. Tsui: There are two answers to this question, a philosophical one and a practical one. From a philosophical perspective, regardless of the amount of planning, it is unlikely that any successor will share the same passion and vision for a family business as that of the founder. In that sense, no family business will truly survive the founder. From a practical perspective, change is a necessary element to business survival. Very few businesses, if any, can remain stagnant and survive the changing business environment. A family business is no exception. Changes to a family business are inevitable both during the lifetime of the founder and posthumously.
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