Keys to a Successful TransitionStephanie Darwish | October 18th, 2010 | Latest News, News & Events
by Samy Amar, CA
Wealth transfer and business succession will become increasingly common occurrences over the next few years. But will these assets be passed on successfully?
Handing a business from one generation to another used to be a fairly simple matter. Today we’re faced with much more complex business and financial markets, requiring great skills to successfully navigate.
Stable family values of 30 years ago are no longer the norm. Diverse attitudes, values, goals and lifestyles mean that a successful transition to the next generation cannot be assured without considerable fact finding, soul searching, and negotiation among family members.
How do you sort through it all? What’s the best strategy for future success? What factors are within your control?
First, some tough questions will need to be answered. Can the business be passed on successfully? Can it continue without the founder’s personal involvement? Is the company better off being sold to employees – or even a third party?
Open communication is essential. Founder and successors have to be ready to put all their cards on the table so that everyone’s role is clearly understood. Legal documentation must be in place. Don’t let a poorly worded shareholders’ agreement become an obstacle to your family’s future.
Successors need skills to run the business. If you expect family members to take over, make sure they’re up to the job. Non-family executives need special consideration. If these people are key to success, have a plan to retain them.
If you expect the ongoing business to take care of retirement needs – yours and those of non-working family members – you need a financial structure in place to accomplish that goal.
Your own future role is critical. Will you be out of the business completely? If you’re going to continue, what authority will you have?
The succession plan would include the following items:
- Documentation of the training and experience requirements for executive positions within the company. This provides a framework and the basis for a development plan to ensure the top jobs are filled by people – family and non-family members – with the right skills and attributes.
- Updated wills, powers of attorney and living wills ensure all family members clearly understand your intentions for the future of the business – and their own futures.
- A signed shareholder’s agreement ensures your intentions for the future ownership of the business can be legally executed.
- Insurance coverage is essential to fund buy-outs, preserve the company’s working capital and provide retirement income for the surviving spouse.
- A back-up plan must be in place in the event something happens to your designated successor.
The succession plan will help you achieve overall success as you transition your business to the next generation. With the assistance of your advisors (accountants, lawyers, brokers, bankers, etc.), you will be able to:
- gain a shared understanding among your family members as to the future of the business;
- maintain the confidence of your employees, investors, suppliers and customers;
- ensure financial security for yourself and your heirs.
The bottom line is personal peace of mind for you and your family at a critical time in your life and business career.