Business Succession Planning
A business owner always denies the inevitable.
There’s no question that the owner is going to die, and yet they put off planning for how to pass their business to the next generation because it’s an unpleasant topic.
Of course, the bankers and the lawyers are happy to help you figure it out– right after the funeral—usually for a very large fee.
It is better for your family, your employees and your customers to start succession planning well ahead of time. And we know how to do it.
Business succession planning is one of Schechner Lifson’s special areas of expertise. In fact, we’ve gone through the process ourselves, quite successfully transitioning the firm through four generations of family leadership.
The idea of passing a business from one generation to another is very important– and very hard. And family businesses are different from non-family business; as different as they are different from families without a business.
You may be born into a family, but you’re hired into a business, even one owned by your own family. In a family, seniority gets you a promotion and longevity gets you status. In a business you’re promoted based on your skills.
And when the two overlap, it can be a lot of fun, or it can lead to very, very stressful Thanksgiving dinners.
It’s important to know where the family ends and the business begins, and it’s very hard to know that sometimes.
We often say that the entrepreneur is almost like a spider sitting in the middle of his web. Over here is the accountant who knows some things, but not everything. Over there is the lawyer, who also knows some things, but not everything. And then you have the insurance the wife, the trusted employees, the son and daughter-in-law—all kinds of different people know different parts of the business. The one and only person who knows it all is the one sitting in the middle of the web, the entrepreneur. He darts out here and there, and then comes back to the middle.
THE STAGES OF BUSINESS SUCCESSION
To put it another way, your business succession plan is like a car, and the money is the fuel. And if you have a plan with no fuel, it’s like an automobile that sits in the garage. It doesn’t go anywhere and you think you have something that’s very helpful, but it’s not. Conversely, if you have the money in place, but no plan, it’s like a can of gas sitting in the garage. You’ve got to be careful because it might blow up. So you really need both to make it work. That’s where insurance comes in. It can be the fuel—the money you need to make your succession plan go.
More than just the death of an owner, passing a business from one generation to the next involves several different stages.
Willy Loman Syndrome is the difficult situation where a business owner doesn’t want to give up day-to-day control of the company. Just like in “Death of a Salesman,” they don’t know when to leave..
A Living buy-out is a way to arrange for an orderly transition of business during the owner’s life, while he or she is still there to give some advice and to help and let the owner phase out slowly and with dignity.
Take care of key employees because in most businesses they not only the ones with brains, they also have feet and can leave at any moment. Locking in a key employee, whether it’s a family member or not, a family business or not, is very important. There are a number of techniques and plans to help that happen without costing the business or the business owner substantial amounts of money.