How can my family business avoid a succession struggle?

How can my family business avoid a succession struggle?

It’s a common scenario in family-owned businesses. Two of the owner’s children inherit the company and, while one is eager to sell, the other wants to keep the business in the family. Unfortunately, such conflicts can erupt into open combat between heirs and even destroy the company. So it’s important for family business owners to make a succession plan — and to communicate it well before it’s needed.

Future thinking

A good succession plan addresses the death, incapacity or retirement of an owner. It answers questions now about future ownership and any potential sale so that successors don’t have to scramble during what can be an emotionally traumatic time.

If one of your heirs would like to run the business, he or she will need the capital to buy out the other heirs. To help your heir apparent carry on the family business, you might buy an insurance policy with proceeds that will be paid to the successor on your death. Or, as you near retirement, it may be possible to arrange buyout financing with your company’s current lenders.

If those solutions aren’t viable, hammer out a temporary compromise between your heirs. In a scenario where they are split about selling, the heirs who want to sell might compromise by agreeing to hold off for a specified period. That would give the other heirs time to amass capital to buy their relatives out or find a new co-owner, such as a private equity investor.

Talk it out

The key to making any plan work is to clearly communicate it with all stakeholders. Allow your children to voice their intentions. If there’s an obvious difference between siblings, resolving that conflict needs to be central to your succession plan.

Consider leaving your business only to those heirs who want to be actively involved in running it. To ensure your other children receive an equitable share of your estate, you can leave assets such as investment securities, real estate or insurance policies to them. An estate planning professional can help you divide your assets fairly.

Family comes first

There are plenty of other issues to address in your succession plan. But for a family-owned business, family should come first. To ensure that your children or other relatives won’t squabble over the fate of the company after your death, make a succession plan that will accommodate all of your heirs’ wishes. Succession planning should be a part of your overall business plan. We would be happy to help you with this process. Contact us today to get started.