Monday, June 17, 2024

Putting First Things First

Quite often we hear business owners proudly explain how they have completed their succession plans for the company. Likewise, convention and conference meeting planners tell us their committees have chosen an attorney, CPA or Financial Planner to present a program on succession strategies for private companies.

In both cases, it’s only a matter of time before both inquiries realize they have big “gaps” in their succession plan (as the owner only addressed complicated estate tax matters and wealth transfer situations), and the presentation only dealt with how insurance was needed to support succession planning, how to save taxes (usually at the expense of a close family relationship), and putting together a death plan. (Last will and testament)

The business, legal and tax issues are similar to those in public companies, and while challenging and appearing complicated to most individuals and advisors who may only work with such issues two or three times per year, these issues can be dealt with relatively easily by a competent team of professional advisors.

Cart Before the Horse
The factor that complicates family business succession planning is the often emotional overlay on the entire process. Most male owners don’t like (and are not prepared for or have the temperament and realize they cannot control) the so-called “soft” issues. But these issues are most likely to determine the success of the planning process. Presently our failure rate for privately-controlled companies is staggering. Approximately one-third survive first to second generation, one-fifth to the third generation and a mere one percent to the fourth generation. From this we must learn that emotional issues must be considered. Some examples would include: commitment to business continuity within the family, who can work in the business, who can be the leader, who can own stock in the company, divorce of a family member, alcoholism, unethical conduct, affairs with employees, break in trust, poor work performance, fairness in compensation among active family, estate justice and employment policy. The desire by many owners and advisors to avoid the emotional component often results in an upside-down planning process. Yet males only seem to understand what they can actually see and touch – documents.

Determining Goals and Direction
When complicated documents are created and presented well before the current and future owners and their spouses have thought through and discussed what their goals and direction are, normally all must be re-done. This happened to a recent client of mine who, with the help of an attorney, estate planner, insurance man and CPA, developed a beautiful buy-sell agreement with insurance support, updated his will and proper trusts for his business and family.

It stated that his two sons would control and manage the family business, and his three daughters would share other family assets equally with all bloodline family members. After several months had passed, he mustered the courage to share what he had done with his spouse and family members.

As you may guess, the provisions of the documents were in direct opposition to most family members. Some were hurt deeply because they were not asked prior to making such life altering plans. And his spouse became so upset, she actually became physically ill.

In his book, The Seven Habits of Highly Effective People, Steven Covey states, “effective management is putting first things first. Leadership decides what “first things” are, then management puts them first, day-by-day. Management is discipline, carrying it out.” E.M. Gray, in his essay on “The Common Denominator of Success,” discovered “The successful person has the habit of doing the things failures don’t like to do.” It requires the power to do something when you don’t want to do it, to be a function of your values rather than a function of the impulse or desire of any given moment, or taking the easy way out.

Achieving Success with Your Planning
The most successful transitions we have observed and have been proud to help with occurred in situations where the spouse and the children were involved early and often in the facts surrounding the business. The entire family took time to identify and develop their values system, a family mission and their creed or how they will operate in conjunction with the family firm and each other.

To avoid wasting time and money, deal with the entire process and begin with the “soft” issues first. Enlist a family business advisor to help with the process. Once everyone’s hopes and concerns are addressed, goals and direction are revealed and taken into consideration, look to professional advisors to deal with company and real estate valuation, buy-sell agreement, proper insurance to minimize risk, will, trusts, durable powers of attorney for health care and financial responsibility, retirement funding, and asset transfer planning.

Successful business owners, pro-active in running day-to-day business activities, are often reactionary when it comes to succession planning. Those who are able to put first things first take control of the process and see it through to a successful conclusion.

Mike is recognized both as America`s Family Business “Coach”, and as the most frequently used speaker in the U.S. on privately-held business succession issues. While making in excess of 60 speaking appearances per year, Mike addresses topics such as business growth & evaluation, succession, developing internal leaders & managers, enhancing communication & harmony, and fairness in compensation, positions and in estate planning.
Phone: 415-920-9027 — E-mail:

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