Frank Talbot, a prospective new client, schedules a meeting with you to discuss his desire to transfer his business to his children. In preparing for that meeting, you ask yourself, "Where do I start?" You know there will likely be a number of issues between parents and children, among the children, and perhaps between the parents. You think, "I'm not an expert in any of these areas."
Your concern is well placed.
Our View and Experience
Advisors do not need to be experts in any aspect of family businesses to help owners develop a successful ownership transition plan. They do need to be well versed in helping those owners develop and implement an Exit Plan based on their goals and aspirations.
What About Frank?
We recommend that you begin the Exit Planning process with Frank as you do with all owners: ascertaining his goals. In family-transfer planning, however, there is a twist. We've found that it is counter-productive to engage in the planning process without the early involvement of both parents/spouses/owners. So call Frank and ask him to bring his spouse to your meeting!
Ideally both parties should be at the initial meeting with you as well as subsequent meetings involving goal determination and design of the Exit Plan. The reason is simple: each party wears three different hats, and each has multiple roles.
Role 1. Parent: "I want to treat each child equally" may conflict with
Role 2. Owner: "A child should be rewarded with ownership based upon their contributions to the business," which may conflict with
Role 3. Spouse: "Frank needs to slow down and get a life outside the business."
Goal setting in family-business succession planning must encompass business-, owner- and family-goals. If the owners/parents/spouses do not first agree on their goals and subsequently communicate those goals to the children, the planning process grinds to a halt. The parents' understanding of what they want and need must be the lodestar for all planning. It provides direction for family discussions and decision-making. It doesn't, however, provide answers to every issue that arises, just the framework within which discussions take place.
The emphasis on the owner's goals and objectives as the driving force behind family-business succession planning does not ignore intra-family issues that can delay or doom a successful outcome. On the contrary, almost all owners have as a principal goal the creation or continuation of family harmony based upon fair treatment of all children. It is up to Frank and his wife, not their children or anyone else, to determine what is fair. This determination directly relates to how best to achieve all of their goals and aspirations.
In subsequent articles we will describe how this approach leads to the creation of specific recommendations on transferring ownership to the next generation.188% of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. Only about 30% of family business survive into the second generation. http://www.familybusinessinstitute.com/index.php/Succession-Planning/