Choosing An Advisor For Family Business Planning


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America’s family-owned businesses form the backbone of our country’s financial strength. There are 25 million family-owned businesses that employ 53 percent of the workforce and generate more than $1 trillion in payroll. Despite this critical role, only 1/3 of these businesses will be transferred successfully to the next generation. One reason for this failure rate is that less than half of family-owned businesses have any documented business continuation plan, and of those that do, only 28 percent have taken the necessary steps to implement and complete the transition process.

Working with business owners as I have for the past 35 years, I find that most successful family business owners have good advisors, but they have a financial blind spot. At one time business owners might have their attorney draft wills, trusts and other documents, while at another time the accountant, insurance agent, banker, stockbroker, and other agents might make different suggestions or recommendations particular to their various fields. The business owner thinks he or she is all set, but the problem is that everything has been put together in bits and pieces. Nine out of ten business owners really don’t know or understand what they have done, and in most cases, they have not developed a succession plan for the business. Most business owners, as well as some advisors, think a few legal documents such as wills, trusts and a buy-sell agreement constitute an estate and succession plan.

Estate planning concentrates on ensuring the distribution of an estate in accordance with a person’s wishes while minimizing the impact of estate taxes. This is extremely important when the family business is a major asset in the estate, and the payment of taxes could unnecessarily cause the liquidation of the business or other valuable assets.

Family business succession planning is essentially the process of creating and implementing a plan for the family business that is designed to match the financial and psychological needs of the owner, the family and key employees with the needs of the business as a going concern. Although family business succession planning typically involves estate planning issues, it is much more complex and difficult. It is not unusual for the process of creating and implementing the plan to take several years because succession planning’s primary focus is one of shifting control of the business, whereas estate planning involves the distribution of wealth. The succession plan involves more and different techniques, many of which involve psychological decisions as well as tax decisions. It involves a need to have a team of advisors serving the whole family, not just Mom and Dad. Often there is a need to distinguish between children in the business and those who aren’t in the business. The planning team and owner must focus on issues of ability and competence of successor family members.

Working with family businesses on their succession plans can be one of the most difficult tasks for an advisor. The financial nuances of setting up the actual succession are tricky when combining tax and estate concerns with a balance between ownership and management issues. In addition, the advisor must sometimes act as a family therapist by negotiating disputes among parents, children, brothers and sisters—all the while helping to keep the business alive and thriving.

I believe one of the reasons so many owners are reluctant to start putting their plans in place is their relationships and loyalty to their current advisors, when in fact, their current advisors are individual specialists: lawyer, accountant, life insurance agent, stockbroker and banker. It is difficult to separate succession planning from estate planning—a plan is not the purchase of a document or product.

The key to a successful succession transition is to choose an advisor who has the experience and expertise to coordinate with all the other advisors needed in the process. The advisor should have the background and a proven process that helps the family business owner deal with all the issues, which may cause the process to become backlogged with indecision.

Succession and ownership transition is too important to be left to chance, to the prejudices of others or even the pulls and tugs of personal loyalties, and it is far too critical to be overwhelmed by the pressures of daily events.

Professional advisors want to help, and they can have all the competence necessary in the field of their expertise to help you work through some of the issues; however, you need to hire someone to take charge of the process. You need a person who has a process for you to follow, along with the necessary tools to keep things moving toward the accomplishment of your desired goals.

The advisor you hire has a number of responsibilities to you, the client:

  • Act as a sounding board, listening to everyone (and that includes Mom, all the heirs, the in-laws and even key employees).
  • Make sure the word, pleasant or otherwise, gets through to those who need to know.
  • Push (gently but firmly) in a form of “tenacious diplomacy” toward decision and action.
  • Set a planning schedule and stick to it.

As your quarterback, the advisor can help you in defining issues and setting directions and help in the decision-making process. The technical questions can usually be answered, but the role of the advisor is to make sure the human questions get asked and answered first. It is never too early to begin the process—the benefits are current, long lasting and include these points:

  • The survival and growth of your business
  • Preservation of family harmony
  • Retirement facilitation
  • Peace of mind knowing you haven’t left to chance whether or not your business will survive and prosper
  • A greater chance that your family will still speak to each other after you’re gone.

To sum it up, keep your ownership objectives continually in mind, commit yourself to the planning process and find professionals whose training background and disposition lend them to making your ultimate objective become reality.

These articles are reprinted with permission from The Family Business Report sponsored by the Goering Center at the University of Cincinnati College of Business Administration.