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7 Business Succession Planning Secrets for Family-Owned Companies

For the business owner who wants to keep his or her company within the family for future generations, business succession planning should be number two on the priority list – behind only the continued growth and health of the business itself.

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7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning

The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.

Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.

There is simply too much at stake, and too much that can go wrong. In fact, there are at least ten business succession problems that have broken many companies apart before they could successfully transfer ownership to the next generation.

In just a bit, you’re going to walk through a detailed guide for how to plan ahead for a business succession experience your family will be able to celebrate for many years.

And for you, once you withdraw from your business, you’re going to be in a very positive financial situation – assuming everything goes well.

But there’s a lot that can go wrong there too, which is why we produced a very special book, 7 Secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning. Written exclusively for households with $5 million to $500 million in liquid assets, here you’ll find out how to protect your wealth from taxes, undue investment risks, and needless loss, while enjoying a secure, financially rewarding lifestyle for many years to come. Get your free copy here.

Now, let’s look at the seven secrets to creating the best possible business succession plan for your family-owned business.

1. Start Earlier than You Think You Should

How soon should you start planning for succession? Now. Only 16% of family-owned companies in one study have actually discussed and prepared business succession plans.

That means 84% are putting off something that takes years to get right, and the average age of business owners is 51. And, it takes at least ten years to work through some of the tasks you’re about to read about. 

Put all that math together, and the conclusion is clear:

A majority of business owners need to start their business succession planning yesterday.

Keep reading to see what you need to start doing.

2. Develop a Confident and Qualified Successor

This is probably the most important item on this list. If whoever you select to take over the business either isn’t ready or isn’t qualified, or both, then all the customers, employees, and family members who depend on your business will have their livelihoods and futures put at risk.

Leadership is where business success begins.

You already know that, of course, because you’re the leader of your business right now.

But selecting the right person and developing the business leadership ability of someone else in your family is not an easy job – assuming they have the basic qualifications.

How do you do it?

First, identify the right person.

Gallup identified three factors essential to business leadership development:

• Natural talent

• Key experiences

• Focused development

Natural talent refers to how a person thinks, feels, and acts in relation to their work. Do they have resilience to setbacks? How do they organize their thinking before starting a project? Do they communicate well with others? Natural talent is about soft skills more than anything else – things that are hard to train for, that some people just have in greater abundance.

Ask yourself, does this person have the right disposition to lead my company?

Experiences and development are where you can start investing in that person today, once you identify the relative who will take over your business.

One of the biggest business succession problems is that other employees and leaders in your company don’t trust or respect the new owner to be up to the task. They often see them as having a silver spoon, and not having earned their place of ownership.

You can prevent this from happening to your heir apparent.


Give Them the Opportunity to Fail

The best thing you can do is give your chosen business successor full ownership of something, and let them fail or succeed at it, on their own. This might be running the family foundation for a few years. It might mean giving them charge of a new department or new product. Or, it might mean trying to rescue a struggling part of the company.

If your business has brick and mortar locations or franchises, give them full ownership of a new store, and send them no help, at all. It lives or dies with them.

Another option:

Let them start a new venture that’s under the same corporate empire, but is independent from the other businesses.

You can also ‘fire’ your own heir apparent.

Not literally.

But send them away from your company. Have them spend five years working for someone else, in an entirely different industry. Let them feel what it’s like to have to deliver for an unsympathetic employer. Let them experience the job search and hiring process, from the receiving end.

All these ideas are about giving the future owner of your company the opportunity to fail, to succeed, and to learn.

This is so critical to the new owner being accepted and respected by the rest of your team, once they take over for you. Those people will respect the new owner not because he or she is your son or daughter, but because they have performed, delivered, and been in the trenches, and they have a proven track record.

Remember how we said this would take at least ten years? This is a big reason why.

You can’t fast-track experience.

Business Succession Planning

3. Spell Out Family Priorities

A business can mean different things to different people in the family.

You may have chosen one relative to lead your company. But you may have two, three, or five others who have various other leadership roles within it. And you have other family members and extended family who may depend on it for various things.

What do they want to see regarding your business?

Do they want it to remain as is? Grow and re-invent itself based on changes in the world, in technology, in social structures? Stand for a particular way of doing business? Promote a particular worldview or ideology, perhaps around philanthropy, or the environment, or a particular technology? Do they want to change hiring practices?

Maybe they don’t expect a family member to be the actual CEO. This relates back to the earlier item about finding a successor. Even if there is no viable successor within the family who can lead the whole business, there may be people who can excel in various other roles. Does every member of the family who expects a role in the business get to have one?

Since it is the family’s business, the family will expect to speak to things of this nature, and others. It doesn’t mean they get everything they want necessarily, but this is part of your succession planning.

4. Clarify Roles of Various Stakeholders

One of the most common problems in family business successions is conflict within the family.

Sometimes, the solution may be to secure outside professional management. There may be no good candidate from the family to lead the business. Or, there may be more than one, but they are bickering about who that should be. Or, maybe the right choice for a successor seems clear, but that person doesn’t want the job, or someone else doesn’t want them to have the job.

Tons of scenarios.

But they have one thing in common:

The dysfunction they produce can cause the business to implode.

Outside professional management will be more objective. Emotion will not be part of their process. And if they are well-chosen and perceived by all parties as objective, fair, and qualified – everyone will respect them and follow their lead.

Part of leadership is recognizing the strengths of the other members of your team. Owning a business isn’t easy, so it wouldn’t be surprising if there were no one in a family who was able to take over the top position. In fact, it is quite impressive when that person IS found within the family, because it takes a special combination of skills and credentials, especially for larger companies.

So, in addition to considering outside management, you also want to clarify everyone’s role in the process. And this applies to your family members who work in the business, and those who do not but may have an advisory role even if informal. It also applies to the board, and to any non-family members who work in leadership positions and have a clear stake in the outcome of the business succession.

These people need to have clear roles defined as you move ahead with the process.

Who runs the meetings? Who is expecting or aiming for a leadership position of some sort? Who has the final say when differences of opinion arise? Who gets a voice in those decisions?

What you don’t want is business succession planning meetings that devolve into bickering, underhanded remarks, and bad vibes.

5. Be Proactive in Communication with All Stakeholders

Again, this is not just about the family member or members who will own the business. Everyone who has a stake in the continued growth and success of the company and is part of the business succession planning should be kept informed of meeting schedules, planned timelines, progress made, obstacles encountered, and suggested solutions to problems.

And everyone should know who has what role in the process, as outlined in the last section.

Communication is so fundamental, but so often this is where the ball gets dropped, and someone feels left out and marginalized. That’s where bad blood begins.

6. Plan How to Transition Out the Current Owner

This part isn’t easy either, because there are so many factors to work through.

First, there are the technical aspects, such as the financial, legal, and tax issues to work through as part of the owner’s exit. Besides those, you’ll also have to work on unwinding the owner from all the other tasks they were involved with.

Think about all the things an owner may do, depending on the business. Here’s just a starting list:

• Manage key networking connections

• Work with vendors and suppliers

• Take pitches – from investors, from employees, etc

• Advise on hiring

• Work on overall marketing strategy

• Manage the board

• Manage key leadership positions

• Cast vision around processes, policies, and product ideas

This list could be ten times that long. Owners do a lot. They themselves don’t often realize how much they do until they try to stop doing it.

What often happens with business succession planning is that you realize you don’t want to just retire cold turkey. You as the owner may want your transition to be spread out, perhaps even over years.

For example, you might want to remove yourself from day-to-day operations, but stay on the board and keep speaking to the direction of the company. You might maintain a few key business relationships that are important to you. You might want to remain involved with specific aspects of the business that you particularly enjoy and remove yourself from the rest.

And then there are the financial transitions. But we’ll save that for the last item.

7. Plan for a New Financial Relationship with Your Business

Will the owner continue to receive a ‘stipend’ of sorts, like an ongoing retirement package that pays out monthly? Will it be a one-time lump sum buyout? Or perhaps some other arrangement.

This is a big question, because if a brand new outside owner were coming in and you were just selling the business to them, then you’d have a business sale price and could make financial decisions based on that number.

But with business succession being within the family, there may not be a ‘sale price.’ However, the owner will probably still want a financial reward for a lifetime of devotion to the company.

You will have to work out the details, and this is where your financial advisor can play a very helpful role, because however you work this out will have tax consequences. The details are different every time, but one approach may produce a far higher tax bill than another, so it is imperative that you work to get the best possible deal for the owner and the company.

Pillar Wealth Management’s two founding financial advisors have served on dozens of business sale teams, alongside lawyers, accountants, and investment bankers.

We have extensive experience making sure exiting owners get the best possible financial deal that protects your wealth, minimizes your taxes, and delivers lifelong financial serenity.

Schedule a call with us today and see if we can help with your business succession plans.

The financial issues you need to work through may not just relate to the owner either.

Suppose, for example, that you have a few family members who were involved in some way with the business, but who want out now that the owner is leaving too. They may want a payout of some sort, and if you think that’s appropriate, you’ll need to work out the details.

One smart way to do this might involve creating trusts for each of them so their payout happens just once, but they can access it over the course of many years.

Again – as your financial advisor, this part of the business succession planning discussion is our specialty, and we would love to help you get the best possible deal for your family.

Reach out to one of our wealth managers today


To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.

We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.

You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.

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