Hand your business off to family without fumbling

The foregoing article is intended to provide general educational information about business succession planning and is not considered financial or tax advice from Union Bank. Wills, trusts, foundations and wealth planning strategies have legal, tax, accounting and other implications. Clients should consult a legal or tax adviser.


Recently, a client came to one of our bankers in need of help. Her husband, who had built a successful technology business, had unfortunately passed away suddenly. For the previous 15 years, she had been focused on raising the couple’s children and was unprepared to take the reins of the business. With no business succession plan in place, she was forced to step in and figure out how to keep the company running while caring for her children.

Regrettably, situations like these are not uncommon and only underscore the importance of succession planning for family businesses. While 41 percent of family-owned businesses plan to pass their company and its management to the next generations, only 23 percent say they have a strong, documented business succession plan in place that has been communicated and agreed upon by all the key stakeholders.

According to a 2017 U.S. family business survey by PricewaterhouseCoopers, business owners cite many reasons for the delay, including lack of time, the complexity, or the belief that it is too early to start. But putting it off can jeopardize the futures of your family, employees and the business itself.

If your goal is to pass your business on to your family, planning and communication, along with the right experts to assist you, will help pave the way for a successful transition. You can start the process with these five best-practices:

Involve the family
Creating an open dialogue with your family is the best way to begin the succession planning process. Discuss your goals for the business and pay close attention to your family members’ feelings and expectations. This is also a good way to identify potential conflicts before they impact your family or business.

Choose wisely
Many entrepreneurs dream of passing their businesses down through the generations. But running the business that you worked so hard to build may not be as appealing to your children or your spouse, or they may not be qualified. Be as objective as possible when determining which of your successors will be the best fit for your business, and be open to the idea that a key employee or a management professional might be the most prudent choice. Management and ownership are two different issues and a well-structured succession plan will address both.

Role and exit strategy
Your succession plan should spell out the specific terms of your exit, retirement, and what you expect from the business once it is being managed by your successors. Consider how and when you will transfer control and how you will be compensated before and after you retire. And keep in mind that transferring ownership doesn’t have to mean relinquishing control or participation in your company.

Start early
Many business owners are so focused on building and running their businesses that they put off business succession planning. However, your succession plan is as important as your business plan —and it is never too early to begin. Owners who pass their businesses to family members need time to ensure their successors are prepared or that the right management team is in place. Once you have completed your plan, make a point of reviewing it periodically to address current circumstances.

Work with trusted advisers
Succession plans can be complex and virtually all plans will involve legal and financial aspects that demand the expertise of a lawyer or accountant. When choosing advisers, make sure they have a full understanding of the business, as well as the personal and emotional context in which you are developing your plan. An experienced wealth strategist can help you navigate the process while providing invaluable insight.
Regardless of how you structure it, putting in place a strong, documented business succession plan will help facilitate a smooth transition for your company that protects you and your family’s financial future.

— Mike Feldman, Head of Wealth Markets Group, Union Bank.