Guest Column from the Jacksonville Daily Record | June 23, 2023 | Bill Sorenson
Owning and operating a business can be emotionally and economically rewarding. It also can be emotionally and economically damaging. In the case of a family-owned business, the rewards or damages can be felt for generations. With the right succession plan, any family can ensure the experience will be rewarding for all.
Succession planning starts with an honest discussion among family members impacted by the business. This discussion may take multiple meetings and should be facilitated by a trusted advisor. Knowing the overall goals of the family and the individual members is critical. Each member of the family should have the opportunity to be heard. Succession fails when individual concerns are not addressed. For example, a second-generation family member may not want to take on the role of president of the company.
Many families make the mistake of assuming the desire and passion for the business will continue with each generation. Open and honest discussion will allow the family to define and communicate a goal understood to all parties. This communication will mitigate the risk of resentment and bitterness that often plague family businesses that either neglect to plan or mandate a plan without considering the wants and needs of succeeding generations.
Succession can be achieved by transitioning the business to the next generation, or by selling the business and distributing the proceeds consistent with the goals of the family. All members of the family should be clear on the goals and methods of the succession process. While it may be uncomfortable to consider, the succession plan should allow for contingencies in the event of an untimely death of anyone in the line of succession.
Trusted advisors to the family should be consulted during the creation of the succession plan. These advisors include corporate attorneys, estate attorneys, accountants, tax advisors, insurance providers, wealth managers, and investment bankers. Succession plan documentation should include a list of the trusted advisors. Additionally, key employees who are not family members should be considered in plan development. If a key employee is critical to transition, he or she should be identified in the plan. The family should consider how to incentivize key employees to participate and ensure the success of transition.
Effective succession plans are living, breathing documents. The family should regularly revisit the plan to ensure its goals are achieved and allow for course corrections when necessary. The family should designate a trustee to keep and maintain the plan.
The family business is one of the most valuable assets inside the family’s portfolio. This asset should be protected with a comprehensive and robust succession plan. If your family has not started the process, you should start today. Effective succession planning is one of the greatest gifts a family can receive.
Bill Sorenson is a principal at Jacksonville-based Heritage Capital Group, an investment banking and financial advisory firm, and director of consulting for Business Valuation Inc.