I recently assisted a successful family business in transition from the senior generation to the next. The current owner had taken over from his father and had built the business into a profitable entity. As the business grew more and more family members became employed including some in-laws. The increased employment created pressure on the businesses’ resources. The owner knew his course of action; “expand the business in order to afford all the family members the lifestyle they deserved or jettison some family members from the payroll”.
Expanding any closely held business is difficult; a family enterprise is very demanding. First a strategy for expansion had to be conceived. The owner had to be willing to personally guarantee the bank indebtedness necessary to accomplish the expansion. Division of duties among the family members had to be made to facilitate the expanded entity. The plan had to assure that each family member had a meaningful position in the organization, because each person would need to contribute to the success or be held accountable for its failure just as they would if they were not family.
Interviews were conducted with the owner and his spouse. The owner’s concept of his role and that of each family member was documented. Each family member was separately interviewed and an analysis was put together comparing the owner’s perceptions with those of the employed family members. Armed with this information, we embarked upon a series of meetings with all family members participating. The meetings were designed to find consensus among the family members and the owner on the strengths, weaknesses and unique features of the business as well as its future.
This process facilitated finding appropriate roles for each of the family members. It also demonstrated to the family that a disciplined-structured approach to the future of the enterprise enhanced the relationships among the family members. The series of meetings allowed the members to address concerns about the direction of the business, their role as they perceived it and as it was perceived by others. The information that came out of the meetings gave all the participants a greater appreciation for the role which each played in the success of the business and afforded them a more thorough understanding of the enterprise and what was required to keep it profitable.
Disagreements and concerns arose, however, the meetings and discussions provided a platform for resolution. Common solutions upon which the family could reach consensus were found. The succession planning process made it crystal clear to each participant that the family business was stronger and ultimately more profitable when decisions were supported by the business plan upon which the family had reached consensus.
The family business plan became the foundation upon which the ultimate succession plan was built. The succession plan was designed to reduce gift and estate taxes, preserve the senior generation’s life style, afford the next generation every opportunity to create their own net worth, and to treat the family members not employed in the business fairly.
THE BUSINESS MUST SUCCEED FOR SUCCESSION TO BE SUCCESSFUL.