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Solving the Succession Puzzle: Tips to a Successful Transition for Your Family-Owned Business

Solving the Succession Puzzle: Tips to a Successful Transition for Your Family-Owned Business

Chuck Miller built his hardware supply business from scratch, and over four decades it became his life’s work. He was a natural at making good, quick decisions and did well by staying abreast of market trends and trusting his instincts. Yet Chuck wasn’t particularly patient or communicative, and he also wasn’t great at planning for the future or delegating decision-making authority.

So, when he died of a heart attack at age 63, his wife and three 30-something children were ill prepared to deal with the business. There had been no succession planning or discussions about next-generation business ownership and none of the children had an interest in taking the helm. With no business succession plan, no grooming of the next generation and no interest among any of them in taking over the successful yet demanding business, the family was forced to sell the company Chuck built, and not for a great price.

As the Millers’ story illustrates, lack of proper planning can lead to failure when either passing your business to the next generation or selling to new owners outside the family. Unfortunately, many business owners put off succession planning—to the detriment of family, employees, and the business itself.


While there is no “one-size-fits-all” when it comes to succession planning, there are common steps business owners can take to establish a succession plan.


Setting goals

The first step to establishing an effective succession plan is to set specific objectives. Ask yourself: What should the plan accomplish? Decide whether you want the business to continue to be family-owned and managed, or if you plan to sell the business to a third party. Also, as a retiring owner, structure your exit from the business in a way to achieve your retirement goals and cash flow needs.

Finding and grooming successors

A good succession plan will not just identify who runs the business but will also define active and non-active roles and the reporting structure of senior management. What’s more, it should establish a decision-making process and a method for resolving disputes. This is particularly important for larger businesses and those where multiple family members will be involved.

While many business owners envision children or heirs as future managers, they should also consider the option of bringing in professional management. If you plan to sell the business to a non-family member, limiting the number of relatives in important management roles will make it more attractive.


Integrating your estate plan

A business is often an owner’s largest asset. Accordingly, a succession plan should be an integral part of an owner’s estate plan. Consider the tax implications upon sale or transfer of ownership, death or divorce. Consider which structure or strategy might best suit your needs and minimize taxes before the time of sale. For estate planning, you should solicit expert legal and professional advice.

Documenting and communicating your objectives

Once you’ve determined a succession plan, you should put it in writing. While all the structural aspects will need to be detailed in legal documents, you should also share the plan with heirs and make sure all are aware with the terms. The more buy-in you get from all parties, the less likely there will be disputes down the road.

Creating a transition strategy

A comprehensive succession plan typically incorporates a transition plan whereby ownership and control don’t simply switch upon the death of the owner, but transition over a period of time. This plan can phase in the successor based on milestones.

In conclusion, a succession plan is a critical ingredient for the future success of your family-owned business. The process can be complex and will involve legal, tax and financial implications so owners should start early and engage the help of a trusted financial adviser, CPA and attorney to help navigate the process. For additional information about how Union Bank can assist with your succession planning goals, please contact The Private Bank today.

©2022 MUFG Union Bank, N.A. All rights reserved. Member FDIC. Union Bank is a registered trademark and brand name of MUFG Union Bank, N.A.

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.


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