Family Business Succession Planning – Critical Elements for Success

During 2012 many family business owners feared that the current estate tax laws would change in a negative fashion. So, they rushed to create succession plans and paid estate planning advisors a lot of money only to find out that the tax laws did not change. Now, many are trying to manage their business through a series of shortsighted rigid contracts that are suffocating their business. So now what? Following are some Critical Elements that should be considered in every Family Business Succession Plan.

Three Key Components

A Family Business Succession Plan needs to be designed to address three key components: ownership transfer, governance and management succession. Most succession plans are designed based upon the needs of the individuals and end with ownership transfer and then asset management. The ownership transfer plan needs to be aligned with the family’s vision and a governance structure needs to be developed to support the ownership transfer plan. The most difficult component, but one of utmost importance, is leadership succession, which greatly impacts and dictates the ability to execute in the future.

Critical Element…..a Family Business Succession Plan needs to address three key components if a family and business are to grow and prosper.

Understand the Needs of the Family and the Business.

Multi-generational success in a family business requires higher levels of commitment and unity of purpose than other estate plans. The focus needs to be on identifying ways to perpetuate the family business and therefore, the dynamics of family relationships need to be considered. Far too often the estate plan is designed around the needs of the individuals (which isolates individuals from the family) and fails to address the needs of the business to operate in a harmonious culture that promotes communication and trust.

Critical Element…..advisors need to take time to understand the needs of the business with a comprehensive approach before prescribing individual-centric, and sometimes irrevocable, planning ideas.

A Journey Not an Event.

Implementation of a Family Business Succession Plan is a journey. Far too often advisors and family members look at succession planning as a transaction or event. The process of how the family and business are going to be governed and managed over the long-term needs to be considered. And this takes time to evaluate. Family Business Succession Plans need to be flexible in order to address the changing needs of shareholders and management.

Critical Element…..think beyond ownership transfer. Think about evolving family relationships and the needs of the business to grow and diversify.

Permanent Does Not Mean Permanent.

Just when you thought you had a plan, President Obama in his 2014 budget proposes a return to 2009 estate tax rates, a reduction in the lifetime gift to $1 million and an increase in the estate tax rates to 45%. And, just when you thought you had a plan your successor tells you he/she has other plans; or there is a catastrophic event that changes everything. The point is, conditions are fluid and the plan needs to be flexible enough to address the changing needs of the business and shareholders.

Critical Element… proactive and do not wait. Family Business Succession Planning draws upon many disciplines and can take years not weeks to implement.

It Should Be a Living Not a Dying Plan.

Remember the goal is to perpetuate the family business and maintain harmony. Harmony reduces the cost of capital and significantly improves operating results. Do not let the estate/dying tax wag the dog. The focus needs to be on designing a living plan that will serve as a conflict resolution system not binding, inflexible contracts.

Critical Element… and implement a Family Business Succession Plan focused on perpetuating family values not a legal and tax structure.3


Every Family Business Succession Plan should include consideration of these Critical Elements to ensure success. Be prepared and create your Family Business Succession Plan today. Call us for further information and assistance.

LeadershipOne is a firm of trusted advisors that help business leaders build business legacies. Founded in 1992, LeadershipOne helps business owners align their values and vision with their transition plan, and execute an Action Plan to ensure lasting success. LeadershipOne is committed to helping family businesses grow and prosper.

Kurt Glassman is a founding partner of LeadershipOne. He can be reached at 916-893-6122 or at [email protected]. Chris Glassman is a principal at LeadershipOne. He can be reached at 916-202-8625 or at [email protected].