Tough Questions & Opportunties

Perhaps the most important reason family and closely-held businesses fail is because they do not plan for a smooth transition from one generation to the next. It may sound like a simple thing to arrange, but it is not. Far from it. Fortunately, there are ways to improve the likelihood that your business will survive a change in ownership. You must first recognize the warning signals and ask some very tough questions. By doing this, you will be in a better position to make those important decisions and, as a result, be that much closer to assuring the continuation of your business.

Have you decided how and when your next leader will be selected?

Even if you are not prepared to name a specific person, in order to avoid business succession problems, entrepreneurs should start planning as much as 10 to 15 years ahead of the actual passing of the torch. This will prepare your family and key employees, while helping you win the critical support you need to carry out your plans as you intended.

Are you ready to pass the reins?

Naming a successor is one thing. The actual transferring of control of your business is quite another. It is a time of great anxiety for everyone involved. The process should be gradual and orderly. The challenge is finding the delicate balance between holding on too long and letting go too soon.

What should happen to family-owned stock?

It is never easy for a business owner to decide which family members should get what amount of stock. Should they all get equal amounts? Or should members who are active in the business be treated differently from those not active?

Generally, those who are active desire salaries and voting shares of stock, while non-active members may prefer dividends and liquidity. Often, family conflict will arise because there is no market for the non-active members’ stock. Although the long-term success of the company is paramount, non-active owners cannot be left at the mercy of the remaining shareholders and board of directors. It is important that you know what each of them truly wants from life and the business, and that your plan leaves them what they need and want, not necessarily what you think is right for them. Open, honest communication, as difficult as it can sometimes be, is critical.

Is your chosen successor ready?

Sharing your family name does not guarantee that your son or daughter (or chosen successor) has the same business acumen you do. Nor does just working at the business. Formal training may be necessary. Their ability to understand the business and make it work is absolutely essential.

What about taxes?

The laws and regulations concerning businesses and estate taxes for family businesses are sometimes different from other types of businesses. What is more, they are constantly changing. Sometimes grandfather clauses are included. Sometimes they are not. With the laws already as complicated as they are, plus the fact that they can change from state-to-state, it is easy to see why it is important that you keep yourself up-to-date and informed.

These questions, and many more like them, are the sort of tough issues you face everyday. Some are similar to the challenges that concern all business owners. Other are made significantly more complicated because of the inherent differences in your family business.

Should every family member have a job within the company?

How can compensation for family members be fairly judged?

What effect will divorces and family disharmony have?

Are there other problems you may be missing because you are too close to them?

Have realistic goals been set for the company?

What about your family?

The questions go on and on. Arriving at answers requires help and advice.

At Kistler-Tiffany Advisors, we are experts in family businesses and privately-held corporations. Our diverse knowledge and sensitivity to what makes your business unique can be of great value to a company planning for continuity. We will assist you in establishing a strong plan to ensure the stability and continued success of your business.

Please also see Business Succession Planning for additional information.