Succession Planning Tips. Easing the Transition of Your Business



Each time a family business successfully transitions from one generation to the next, it is quite an achievement. It requires many different people working well together over a sustained period of time. 

Succession planning is a complex challenge that will impact millions of businesses on the American business landscape. Speaking from personal experience, there are emotionally charged issues complicating the lines between business and family. Results take time to achieve and there should be a workable contingency plan in place if time runs out before the succession plan is finalized. This happens more often than people realize.
There are approximately 13,000,000 family owned or family-controlled businesses in the U.S. These owners will shape an important part of the U.S. economy in the future. Second and third generation entrepreneurs face entirely different issues than the founders did. Technology, work forces, competition and a global marketplace are changing at remarkable speed, challenging the best of these companies. For businesses with founders who are still controlling operations, a more difficult job for the successor(s) can lie ahead. Less than half of family businesses make it to the 3rd generation.

Do you have a plan?

Many family-owned businesses owners wrestle with succession planning challenges. Some find the subject daunting and tend to avoid it altogether. How to preserve and protect the company’s value and values is at stake.

Successful succession planning is done with a team of trusted and experienced professionals consisting of attorneys, CPAs, insurance people, valuation experts and industrial psychologists. Questions of law, taxation, valuation and transition planning will emerge and these professionals will have the answers.

The plan is a fluid roadmap, always changing.

Succession Planning is a process, not an event, and works best when it is designed to be updated and reflect changes in leadership, family structure, the market, competitive conditions and the health realities of current owners. Regular reviews deal with:
  • Prospects for future leadership.
  • Transition during change. 
  • Business valuation & real estate issues.
  • Frequency of reviews.
  • Estate and Gift Tax considerations.
  • Expectations of non-family stakeholders who were promised compensation or other perks in exchange for loyalty to current stockholders.
  • Intra-family issues.
  • Members of the planning process.
Sometimes, dysfunctional family problems come into focus. When these issues are not handled successfully, there is a real chance of derailing the transfer of a business. This can jeopardize the future of a business but the financial security of the families too. Oftentimes, these are the triggering events leading to a business failure or the beginning of succession planning.


Succession planning and life insurance.

Too often, life insurance is not present or under-utilized in a transition plan. The death of a founding shareholder is unsettling. Children have lost a parent, a spouse has lost a partner, employees have lost a leader and a business has lost many things. Time stops and the dynamics of change begin to be felt. Throughout this change, stability is crucial. An infusion of liquidity from life insurance proceeds will ensure stability.

To minimize the impact of estate taxes, to create immediate liquidity and to guarantee immediate liquidity life insurance should be part of every succession plan in a family business.

Life insurance enhances estate planning strategies. Structured properly, the net cost is minimal. In these cases, the cost of life insurance is handled by moving assets around on the balance sheet or through a private or bank financing structure. These are classic uses of insurance that guarantee better transition results, especially when valuations are challenged or litigation occurs. Litigation acts as a freeze on the planning strategies that were designed. Regrettably, the value of life insurance is not always appreciated or supported by all members of the planning team. Successful wealth transfer is not all about X’s and O’s. It is imperative that advisors are able to understand the problems from the perspective of wealthy families and relate to the challenges facing the family and its business. It will be helpful for family businesses to work with professionals with a track record of experience working with family businesses.


Tips for successful succession planning:

  • Create a plan. Nobody enjoys discussing mortality, but an effective succession plan establishes the ground rules for what will happen when you are no longer effective at managing the company or no longer have a desire to do so. 
  • As the founder, envision and embrace the long term benefits of turning over the reins and seeing the company flourish.
  • As the founder, establish a goal of becoming the company’s Good Will Ambassador. Who knows this story better?
  • Have regular strategic planning meetings during the creation of the plan.
  • Create a Board of Directors who are objective including some outside the family ownership circle. Allow G2 and G3 to participate in board meetings and appoint board members.
  • Communicate with your team of outside advisors, including lawyers and accountants who have experience with closely held businesses, complex corporate matters and estate planning. This team will be a source of insight, continuity and strength during an unexpected family crisis.
  • Keep non-family shareholders to a minimum. Create written incentive plans instead. Create a stakeholder instead of a shareholder. 
  • Buy-sell agreements should be in place for all shareholders, including founders. When a shareholder experiences a serious and unexpected health change, review the succession plan.
  • Be honest when analyzing the strengths and weaknesses of family members.
  • Be prepared for the unexpected. Who has been appointed to run the company at the sudden loss of a key owner?
  • Include the next generation of leaders as early as possible.
  • Prenuptial agreements for family members working in the business should be mandatory. The threat of divorce can be damaging to a family business. Litigation is divisive and destructive. The agreements show strength and commitment to the business’ long term success and protect family members.


Share the plan.

Many family-business owners acknowledge the problems that can emerge without a succession plan but find it difficult to create and implement one. The confusion and ambiguity of not knowing how or when the next generation will take over can be avoided. Apathy or silence won’t prevent family members, key employees, customers or even competitors from reaching their own conclusions about the future of the company.

Getting started:

  • Vision for the business and the family.
  • Family business mission statement.
  • Overview of the company’s position in the marketplace that delineates its strengths, weaknesses, opportunities and threats.
  • Projected revenues, earnings and net worth for the next three to five years.
  • Summary of transition plan.
There is never a perfect time to review your plan or begin the process, which makes now as good a time as any. Please contact Ted Bernstein in Boca Raton, Florida. Ted can be reached directly at 561-869-4500 or by visiting Life Cycle Planners on Facebook. 

Also published on Medium.


Ted Bernstein

Dedicated to helping people create the ultimate retirement security and protection plan to safeguard their families and businesses. I stress guaranteed income solutions, indexed annuities and state of the art wealth preservation strategies. As the innovator of life insurance products without commissions, my recommendations are impartial, objective and always in the best interests of my clients.

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