Family business survival depends on succession

Many business owners harbor a dream that the company they coddled and nurtured from the ground up will succeed beyond their own lifetime.

In passing on the legacy, they hope their own children will reap some of the financial and emotional benefits they enjoyed through the business.

But corporate and personal family issues often collide head on in planning for the next generation of a family-owned business.

Many owners, for example, come to the table with a desire to give each of their children an equal portion of the business. But fairness does not always mean equality. And for parents who have spent a lifetime convincing their children that they love all of them equally, this hurdle can be a tough one to cross.

In successful succession planning, an owner must totally divorce himself or herself from family issues and keep a firm grip on the main objective: preserving the business. The process begins by finding the answers to three important questions:

Who? Consider first who might be best suited for the job before factoring in any emotional issues.

If only family members are considered, for example, look first to see who has the most aptitude and interest. If a surviving spouse would be considered, how active has he or she been in the business? Are there key employees non-family members to consider?

When? Does the owner plan to retire or does she simply want to prepare for disability or death? Does the owner want to gradually cut back on any or all aspects of the business?

How? Is a steady stream of income needed to fund retirement? Can the new owner or owners finance the transfer?

The earlier the planning process starts, the more time and thought the owner can put into answering the questions, and experimenting and testing some options. Giving one employee additional responsibilities, for example, might help in gauging his or her readiness for a top slot.

Professional advisers can help in sorting through the possibilities. Often an insurance agent, accountant or lawyer who is familiar with the business but not immersed in the day-to-day operations can provide good, unbiased opinions.

These advisers also can help the owner overcome some of the obstacles the plan might create.

For example, tax consequences are a key concern for many owners, and good advisers can help find ways to minimize the liability.

The issue of financial fairness for all family members also can be addressed after the framework for a succession plan has been laid.

Preferred stock plans, life insurance and the sale, gift or bequest of other assets are just some of the tools that can be used to balance the proceeds for surviving heirs. Once objectives and motives are fully understood, professionals usually can find ways to develop a plan that all family members will find to be fair.

Once completed, the plan should be written down and discussed with everyone involved, especially if they have not been a part of its preparation.

While frank discussions about succession and eventual mortality can be difficult, family members are generally reassured when they understand the reasons behind decisions.

The owner, much like a parent, is part teacher. In order for a business to thrive into a new generation, philosophies, business practices and experiences must be passed along to employees. And if the employees are also the owner's children, the legacy of the family business becomes fully intertwined with the family's own heritage.

(Cynthia M. Murray is an agent with the Northwestern Mutual Life District Agency in Springfield.)