subject: Business Succession Planning Involves Setting Critically Important Goals [print this page] If there is one reason why family business succession planning should start sooner rather than later it's because the decisions made early on can have a dramatic impact on everyone involved.
One effect is psychic, it makes us all feel better, more assured, and confident when we know as much as possible about what's in store for us. The other reason is financial, remember the concept of compound interest and the "rule of 72" - well they come into play in a big way when you're considering how to effectively develop a family business succession planning.
For example if you could make the decision, based on serious conversations with your family, on who is absolutely not going to be part of your company's ownership and management in the future, wouldn't that make other critical planning decisions more effective? Let's say that one of your children moves across the country and establishes a life and family there with no intention of returning to run the family business. If that happens doesn't it make sense to acknowledge that they are not part of the next generation ownership and management equation?
Training, hiring, and all other aspects of your family business succession plan would be based on real information about the future players. Stop kidding yourself. It leaders to bad decisions and your real successors may get fed up with the fantasy and leave you high and dry.
Wouldn't it be better for these heirs, the ones not involved in the company's future, if you gave them their "inheritance" today instead? They could buy that bigger home now and benefit from its growth in value over time making their legacy from you even more valuable than if they waited decades to receive it.
They could start a business or feather their own retirement nest egg. Or set the money aside for their kids' college tuition. Wouldn't that be great? They would be getting their inheritance while you are here to see how it works out for them, rather than receiving after the worst day of their lives - when the people they care about more than anyone on earth are not around for them to thank.
And if these non-business heirs already believe that their siblings who have stayed continued to work in the family business already have their inheritance, wouldn't they feel they are being treated more fairly?
Then there's the financial aspect to consider. Any money you give to those non-business heirs today, even if it represents a hefty percentage of your organization's current worth is a lot less than the same percent of your estate twenty, thirty, or more years from now.
And if you are like most people, your will - in order to take advantage of current laws, probably says something like, "all to mom when dad dies, and then divided equally among the kids" - meaning that the non-business heirs will most likely be at or near retirement age before they inherit anything. That probably also means that your business successors will have to start buying their interest at the time they too are nearing retirement, in order for their kids to have a chance to own the company.
What's the point of all this? If you sincerely want to treat your non-business heirs fairly, give your successors a real chance to grow the business for their children and all the while keeping the existing operation intact - you need to think outside the box a little.
You need to have honest discussions with your grown children now. Let your children be part of the conversation, discuss this with your peer group to see how others are thinking about it and light a fire under your advisors' feet until they come up with ideas that work for everybody.
