How Family Business Succession Planning Becomes Succession Implementation

The Right Succession Discussions for Each Generation

When it comes to family business succession planning, there’s a big question I have received from readers. The answer to this question will help provide some solid next steps to transform succession planning into true succession implementation:

“You speak about a time to have a series of one-on-one discussions with various family members to get their take on a general outline of events about the business succession planning. What do you cover in these one-on-one discussions, and what needs to be clear before calling the big, joint meeting(s) for the family?”

Before we get into specifics regarding the actions during succession planning, it’s crucial to remember two goals above all:

• Maintain the family as a family.
• Do not create issues that drive future generations apart.

Whether the discussion is being brought back to succession planning after a few false starts or is just starting for the first time, I’m going to focus on a Generation One to Generation Two transition for the purpose of simplification. (It gets much more complicated as the number of individuals and families involved increases.)

The Business Succession Planning Discussion 

Generation One:

Our Generation One owner:

• Recently turned 60 and is healthy.
• Wants to lay out the plan for his retirement by the time he turns 65.
• Seeks to pass on the leadership/management and ownership of the business to family members of Generation Two.
• Does not want to sell the business but does want to have the means to be supported by the company in his retirement.

Here are some of the questions we want to ask our Generation One owner prior to the expanded conversation with the family about succession planning:

• Owner’s Payments: What types of payments and amounts do you expect to support your retirement goals?
• Generation Two’s Payments: Assuming you want to treat all of the next generations equally financially, will this happen through an ownership mechanism or some other financial tool?
• Your Involvement: Upon retirement, will you have a role in the ongoing leadership or management of the business or its board? 
• Generation One’s Involvement: If there are other active members in your generation, but leadership is passing to the next generation, what role will the members from your generation play going forward?

Generation Two:

Our Generation Two family (Four Members):

• Two members are active in the business.
• Two members are not active in the business.
• All members currently receive some payment from the business.

Just as with the first generation of ownership, Generation Two family members deserve their own set of questions before the large family conversation on succession planning, such as:

• Financial Expectations: What are your expectations and desires related to financial support from the business, if any?
• Role Expectations: What are your expectations regarding working for the business? What about the expectations of your children?
• Future Endeavors: Are there other interests you have regarding things the company should contribute to, such as a social action initiative?
• Spousal Roles: If you are married, will your spouse have a role in the business?

The Big Joint Meeting Among All Generations

After gathering input on how to address the issues raised one-on-one, it’s time to start the group discussion so that all can hear about the business succession plan. The key word here is “start.”

We have all seen instances where the owner says, “This is the way it is going to be.” The better approach to maintaining some sort of family unity is to begin a discussion with the desire to conclude the issues relating to this set of transitions within a defined period of time.

However, as with most issues and plans, we also need to keep in mind that plans don’t always achieve the results we were looking for.  Therefore, we may also use this as the launch point for an ongoing discussion with a family assembly or family council to discuss progress and where things might be necessary to change.  Examples of questions in this group setting may pertain to the following areas:

Payment 

Everyone will receive some level of payment from the business. However, do we agree that those working for the company will likely receive more than those who aren’t?

Dividend vs. Reinvestment Decisions

As the ownership will be divided between those working in the business and those who aren’t, how will decisions be made regarding paying dividends versus reinvesting in the business? 

This is one of the great business succession planning issues that typically prompt Spitulnik Advisors to suggest creating a set of family guidelines for a family council and a board with independent directors.

Leadership

As some family members of the next generation are active in the business and some are not, what criteria will we have for selecting who is in charge or whether there will be co-leaders?

Is it automatic that family members will have a job, or are there prerequisites for joining the business, such as having worked at another firm for a period of time and having achieved a certain level in the outside firm?

The Best Succession Plan for Your Family Is the One Your Family Agrees On

Remember this: Every family is unique, and family business is as well. As the saying goes, “If you have seen ONE family business, then you have seen ONE family business.”

Yet, when you commit to one-on-one conversations among the different generations of family members to address their specific goals and plans, you can then move into the larger, ongoing group discussions that bring everyone together in alignment, both physically and in terms of thinking about succession.

As a result, before long, you will find yourself moving from business succession planning to succession implementation.

We think you’ll also like:

1. It’s Never Too Early to Start Leadership Succession Planning
2. Family Business Succession Planning: Prepping the Kids to Take Over
3. How Strong is Your Business Succession Plan?

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. The Effective Board
2. Valuation / What’s it Worth? Valuing a Business for Sale
3. Episode 3: Where the Board’s Duties Stop & the C-suite’s Duties Begin: An Overview of a Board’s Functions & Fiduciary Duties

[This is an updated version of an article originally published on January 16, 2020.]

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