Succession Planning

Bringing family members into the business may be a source of hope, a threat or cause frustration for family members in power. For those aspiring to attract their family to the business as well as the incoming generation, several issues complicate ‘being in the family business’.

Should the issues of equity ownership in the family business be a birthright? Can the shares in the business ever be sold? If so, can they ever be sold to family members only or to outsiders? What expectation of regular dividends can a family member reasonably expect and what is an appropriate amount to pay as a dividend?

One way to help prevent or resolve conflict is to develop a family creed, a written distillation of the family’s core values and principles, underpinning how the business is to be run.

Does share ownership confer ‘rights’ on family members not involved in the business or do active family members have absolute control over business decisions?

The financial structure of a family business should create maximum flexibility and ensure that there is sufficient finance available to allow the company to achieve its strategic goals. Financing is often a crucial issue for owner-managed businesses.

Any senior executive joining a family business from the outside is likely to be apprehensive. How can a family business retain, introduce and reward non-family executives?

Consideration needs to be given to preserving wealth outside of the business, thus developing an asset base which is not reliant on the fortunes of the business and provides a way of spreading financial risk. It is likely that you will have accumulated wealth as your business has matured.

Family controlled companies usually represent an enviable source of financial independence for family members active in the business. The question of fair remuneration for family employees is a burning issue. Attitudes to pay are often coloured by personal circumstances and relationships within the business, particularly where members of the family are involved.

Resolving conflicts quickly and professionally in a family business is very important in order to minimise the impact on the business. Like any organisation with overlapping roles and conflicting objectives, the family and the business will not always run smoothly.

Retirement and estate planning for security and financial independence is a common sense approach for any executive. In an owner-managed business inadequate planning can be a powerful obstacle to succession, put simply, until the older generation feels financially secure it is reluctant to release control to the next generation.

Properly integrated, strategic planning for the family and the business can be a powerful competitive tool and help the family secure its future for generations. Every business, regardless of its size, needs to decide what its objectives are and how these are going to be achieved.