amily and a family business, becomes very complicated when transitions have to take place. First, after establishing how the financial needs of the current generation are going to be met, current family business owners should discuss taxation implications with a professional.
Understand what’s going to happen legally when a sale, transfer of ownership, or death takes place. Most likely, business leaders have already addressed this and have a process instituted. Like everything else, this process needs to be reviewed in order to avoid unexpected taxes as well as delays in transfer of stock.
Remember to make sure the transition plan is fair to all parties and that it reflects the values of the family and of the business. Consider all options available within the transition, such as whether it will be a purchase or a gift. Consider any financing options available, as well, and what implications financing can place on a relationship.
Will the retiring owners help the next generation finance the purchase? If so, how and within what timeline will the successor pay back the lender? With these decisions made and put into place today, both the first generation and the second generation will enter into the transition fully prepared for what lies ahead.
Establish a Timeline for Implementation
Establishing a timeline for all of the above plans is a very important step. Of course, not all timelines will be met. For example, will succession take place after the current generation has retired or after there is a death? As impersonal as this sounds, this decision needs to be clear from the beginning, simply for the sake of creating a timeline and ensuring that all involved parties follow each step in a timely manner. Financial decisions, for example, should be discussed early on, taking into account that unexpected events can easily happen. Early planning helps avoid taxation surprises, allows successors to follow through with other personal and professional goals, and gives the current family generation time to refine goals, visions and other areas of the family business succession planning process.
Early planning also helps families deal with conflicts. Family businesses suffer from personal and professional conflicts much more than non-family businesses, and for succession planning to be successful, these conflicts have to be dealt with in a wise and fruitful manner. There is a future at stake here, and for the family business to survive transitions, conflict resolution is imperative.
If you feel that your family business isn’t adequately prepared for succession planning and succession transition or if you feel that there are members of the business not ready for the transition, take a moment to let Coach Pete encourage you, a family business leader, to ask tough, important questions regarding the timeline of the succession planning process.