It’s About the Kids

It’s About the Kids

Not unlike every other important conversation between spouses, succession always has what might be referred to as its ‘Venus and Mars’ moments. One spouse uses feelings as a rationalization for what should be done and for whom---often basing arguments on emotions rather than reason. While the spouse falls back on objective measures and indications from past experiences---often holding onto a set of ‘perceived’ facts and refusing to consider different opinions or alternate outcomes

The longer a discussion carries-on the more frustrating it can become for both. Arguments always expand to fit the circumstances a person wants to support or refute. Although each family’s situation is unique, there are a number of factors you should consider when thinking about succession and describing equitable distributions of business interests among your children. The following questions may be on your mind as you envision succession and anticipate retirement:

  • Who will receive ownership, assets, and properties specifically related to the family business – only children active in the business, or all of the children in the family?  
  • Which assets and properties should active and inactive children receive – land, equipment, equity, other assets not related to the business, etc.?
  • How much should each child receive and will you grant equal dollar values to all or disproportionately compensate those children who contribute sweat equity to the success of the operation?
  • When will your children receive ownership, assets, and properties – for those active in business will ownership be granted during your lifetime, gradually overtime, to ensure a smooth transition and then for inactive children, do they understand assets may not be distributed until a much later date, as in the settlement of your estate?

To help start the conversation, I encourage business owners to consider and then discuss the following questions with their spouse and trusted professional advisors:  

  1. Do I have sufficient financial resources, separate from the operation, to fund a comfortable retirement, specifically if I transfer my business interest to the next generation during my lifetime?
  2. If not, you will have to receive some form of consideration (income, note payments, consulting fees, etc.) in return for ownership and/or devise a way to retain an income interest in the operation while transferring some ownership and much of the day-to-day responsibilities to a well-prepared next generation.
  • Do I want my children, who are currently active in the operation, to receive the business if I die prematurely and, are they ready now to assume a leadership position and make the decisions necessary to continue operations?  
  • If the answer to both is yes, then your challenge becomes providing financial security for your spouse and other dependents should you become disabled or die prematurely.     
  • If the answer to either one is no, this may be a good time to review your obligations to your spouse and consider how you may satisfy this important obligation to your dependents.   
  • Will an immediate transfer of the business to my active children create conflict among the family, especially, if the inactive children do not receive an equitable distribution until a time when they may settle my estate?
  • If so, you may consider involving your family in the discussions about succession. Family members, both active and inactive in the business can be instrumental in helping to address your succession concerns.  
  • Alternatively, you may consider allowing the active children to purchase ownership using favorable terms and conditions.
  • If there are multiple children active in the operation, are they capable of working harmoniously with each other, dividing duties and respecting each other’s lines of responsibility?
  • You should consider creating job descriptions and assigning specific roles and responsibilities in the operation for all active family members.  
  • Do your children who are active in the business have the skills and abilities necessary to run the operation, or should you consider some form of transitional management until a family member is fully prepared to lead?  
  • Transitional management can fill a multitude of roles including mentoring the next gen, chairing an advisory board, and day-to-day business leadership, if the owner has minor children who are not yet mature enough to assume a leadership role.
  • Have you anticipated and planned for the ‘what ifs,’ in other words what would happen in case, of premature death, disability, dissolution and divorce?
  • A well-crafted buy/sell agreement will help you and your family maintain the integrity of the operation and ensure your family’s financial security.
  • Are your children, who are active in the business, currently participating in a professional development program, including learning experiences, classroom education events, and mentor-protégée relationships?
  • Each leader in your organization should be responsible for, and accountable to, a written leadership development plan. A well-designed plan will increase the organizations capabilities and improve your company’s bench strength.

Each of these questions is written to encourage dialogue, help you discuss your goals, and prompt you to consider the important elements of succession. Using these questions as a conversation starter will help your family to define their succession intent and settle on specific goals. Even if you have an existing plan, it’s never too early to revisit and refine your objectives. You should be sure that your actions align with your goals to help you generate a favorable outcome.   

Imformative and comprehensive

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