You Must Want To

Succession planning

It is remarkable how many people talk about succession planning, but do nothing. There are a dozen excuses, principle among them is the unstated, “I want to have control.” The costs, the training, the organization structure, the timeline, the family fairness, and the financing are secondary, but important.

A Story

Parents own a successful family business. The idea is to transfer to two children who both work in the business. The children are day-to-day, while parents are more remote. Father wants to transfer ownership, but wants control. The children do not want him meddling in what they are developing. There seems to be no resolution.

Finally, I took the father out to lunch and pointed out that the boys were very capable and committed to the business. They would be the fourth generation, which of itself is nearly unheard of. He acknowledged their ability but still wanted to be the primary voice.

The resolving suggestion went like this. “The boys are more current and very skilled. If they agree on a decision, it is nearly certain to be right. When they disagree, perhaps your experience would be helpful. With that in mind, I suggest we structure based on 49% for each of them and 2% for you. When they disagree, you will be the decider.”

No further impediments to the plan.

The strategic overview

An internal family succession will take years, even decades. Not every child will want to participate and not every child will have the ability or temperament to make it work. Parents must make some difficult and objective decisions if the family is to continue as the owner.

Timing matters. Ideally the successor takes charge while still young enough to add the imagination and energy to keep it growing and prosperous. Elderly successors usually fail unless there is a grandchild being groomed.

Training for succession is not simple. Not even easily understood. Parents have skills, connections, and duties they may not consciously know about. Years ago, I had a founder keep a contact journal of who he talked to, why, how he knew them, what they helped with, and how to contact them. He filled nearly 900 notebook pages in a year. The son who was taking over claimed he knew only about a third of the people in the journal. How hard would it be to rebuild that database? In homage to Max Ma’s Law, “That’s not a problem, that’s impossible.”

The process would be much easier today, but the idea is not irrelevant.

When transferring ownership, the financial side is likely the easiest part. Debriefing the current owner/manager is difficult. Think processes in the factory, customer deep information, suppliers and their alternatives, half thought through plans, community commitments, and employee evaluations. Training is not a formal course, but more a transfer of soft things and culture.

No one dies with everything done, so watch for that possibility, too. You can’t phone and ask for advice.

Succession is difficult

Almost every business owner sees the business as a child. “Maybe a few minor defects, but basically good, or becoming good.” It is hard to give up on that image and turn over control to another. Many don’t and the business flounders when the forced succession at death or disability occurs.

Family businesses are by far the most difficult because there are so many layers of connection to deal with. I could stop being your business partner, but to stop being your parent, child, or sibling is much more challenging. The walk away option is never painlessly available.

Be sure to assess family effects.

Will cash flow in retirement be secure and leave the estate intact? Will the estate be large enough to make an equitable distribution to other children. Will it be liquid enough for taxes, charities, and that equalization.

Do not stop thinking with the tax effects and the share structure. Just notice the soft things are the more important. The result must be durable and yet simple in concept. Tactical details are inevitably complicated.

Most of all, notice communication and attention to detail matter more than in a sale to employees or strangers.


I help business owners, and professionals understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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