C ORPORA TE n


Ryan


Middleton, VP Client Relations


All too often, political candidates litter the campaign trail with promises of novel solutions for pressing social issues, governmental transparency, and fiscal policies that “will actually work.”


After the election, however, the public faces the reality that its newly minted officials can’t deliver on the vast majority of these promises. As for the remainder of their elected terms, we all know how they usually turn out ….


Greg Latimer,


JD, Compliance Associate


Te campaign and term of a family business’s succession face the same challenges. Whereas elected officials often fail to deliver without repercussion, a business owner must succeed! Te reality is that transition as a business owner almost never lives up to the promise of “cashing out” and riding off into the sunset. In order to effectuate a successful transition term, many businesses begin by growing the next generation


through employing other family members. Discerning if someone in the family or another key employee has the ability to continue to lead is a key to mapping a transition plan.


In addition to determining who can carry the torch, two of the most overlooked aspects in this process involve communication with employees and liquidity to facilitate the transition. Handling these two aspects with care can help a family business deliver a smooth, successful succession process.


From not getting caught up in the hype to attempting to deliver on promises of his own, communicating the succession plan to family members and employees is paramount for the business owner. Employees need to be confident of the future during the transition. Some employees may have an emotional attachment to the current business ownership, and may hold a different view of the impending change. Tink of the history of the business: how it started, how it survived ups and downs, and how long employees have been with the organization. All these factors impact employee feelings, when the family business ownership changes. Clear communication of the reasons and the transition plan helps quell potential employee dissatisfaction.


Liquidity (the availability of assets to a company) is also an essential aspect to delivering a smooth transition for the actual


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succession process. Te retirement income for most family business owners is often contingent upon the sale of the business; therefore, having a plan for the business to fulfill this financial need for the current owner’s retirement is imperative to avoid a liquidity crunch for the next generation or a financial void for the business itself.


Discerning if someone in the family or another key employee has the ability to continue


to lead is a key to mapping a transition plan.


Consider, for example, what may result from an unforeseen death of the majority shareholder. Death taxes, other beneficiary bequests, and debts within the estate could create a significant lack of liquidity. Te result? In some instances, the result could be a forced sale of the family business at a price much lower than the anticipated value.


Instead of allowing for this possibility, a business owner can “deliver” with precautionary steps that include a shareholder agreement with a liquidity plan for succession upon death, estate planning in advance to spread the succession process over time, and the use of financial instruments positioned to mitigate unexpected loss. Planning for succession with the use of these tools offers help to provide the successful delivery of a family business to the next generation, instead of to an unintended party at an undervalued price.


In the end, openly campaigning the plan to employees and delivering with substantive solutions for the actual transition are what it takes to ensure a “succession re-election”!


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