Finishing a best-year-ever 2018 and being questioned daily by his second wife Anna Nicole about making her children officers and owners of the family business Buxboro State Bank, Big Daddy Ernest Bux concludes, at 65 years old, that it’s time to think about a family business succession plan. What should Big Daddy do? Is he likely to succeed?
Check your business structure, your entity agreements and your personal estate documents. Undoubtedly, Buxboro State Bank is already a corporation with several shareholders. Family businesses are often a sole proprietorship or partnership, which give the sole owner patriarch/matriarch great flexibility; however, that is wholly unworkable for sibling ownership. An overarching entity agreement is also critical to establish the business governance and to permit planned and predictable transfer of the business among the heirs. Otherwise, only the business assets can be transferred. It is very common for owners like Big Daddy to sign thoughtful estate plans – at the urging of their wives like Anna Nicole – which are never, or partially, implemented.
Start early. It may be too late for Big Daddy at 65. Plan thoughtfully and act upon the plan. Complete the business structure, entity agreements and estate plan – or change it and then implement it if significant adjustments make sense. Big Daddy’s skeletal checklist of issues and considerations are –
- Establish goals – both business and personal living after retirement.
- Decision making – involve key family members and employees.
- Successors – identify and train managers and owners, and be realistic about officer family members. Remember, while Big Daddy might want his heirs to share equal value, that doesn’t mean they have to share equal ownership in the business.
- Estate planning – consider estate taxes and implementation of estate plans.
- Transfer and entity structure – focus on how the entity is to be governed. Keep in mind, if all else fails, buy-sell agreements are critical.
- Contingency planning – consider what-ifs, such as early death, disability and unforeseen changes in the company’s business climate.
- Current business valuation – can it be maintained and does it align with Big Daddy’s growth strategies and business vision.
- Exit strategy – synchronize business succession with retirement plans.
- Implementation/follow up – what professional help is needed to complete this checklist? And when should help be enlisted?
- Document maintenance and control – while these may appear to be unnecessary for a sole owner, they become especially critical upon Big Daddy’s or the patriarch/matriarch’s death.
- Family law considerations – “simple”, single-marriage families, let alone blended families, have complex issues that overlay this entire checklist.
Big Daddy should tread carefully and avoid the temptation of throwing up his hands and leaving all of this to Anna Nicole. Doing so imperils the inheritance of Big Daddy’s children of first wife Angelica – John, Jack, Jill, Janet and Kathy. Even with just one wife and several children of their own, Big Daddy and Anna Nicole should plan, establish goals and involve – at some point – all of their children in the decision making process to address: sibling rivalry (the more siblings, the greater likelihood of different opinions); active business assets (requiring daily management, like Buxboro State Bank) more so than passive assets (operating without much oversight); sibling needs (including emotional and perhaps even social, as well as financial); and the parents’ expectations.
Tilting the Scales – Weighing in for the Family
Big Daddy and all matriarchs and patriarchs should avoid the inclination to “let Anna Nicole handle it when I die” and hope for the best. Over decades, Big Daddy has routinely devoted intentional time and effort (often relying upon professional advice) to set business goals, implement business growth strategies, identify and train key business managers and their successors, and plan for all sorts of business contingencies – and certainly unexpected changes or disruptions in the business climate. How could Big Daddy realistically expect his family business succession plan to succeed without the same kind of planning? Succession planning requires more than just Daddy love!
Over the next several months we will look deeper into each of the considerations listed above and identify strategies for success. We hope you’ll stay tuned.
This Reminds Me of a Song
Do you remember? “All You Need is Love” by The Beatles
Family Business Resources
At Gray Reed, we have a robust family business/family office team. I work with them to pick up the pieces when one or more of these estate planning stumbling blocks erupts into a full-fledged fight between families over their businesses, family offices and estates.
Related Tilting the Scales articles: Should an Owner Finance the Buyer of their Business?