Business Succession: Who Will Run Your Business After
You're Gone?
July 2009
Many entrepreneurs have spent decades building their
business right alongside raising their family. But for as much calculating
thought as they put into running a profitable company, they probably have
devoted much less thought as to who's going to run the place after they're gone
– whether by retirement or death.
They haven't asked themselves how much money they might
need in order to exit the business (retire) or under what terms they would
transfer the business (sell). If they plan to sell, will the buyer be a
relative, an employee, or someone outside the picture?
"I Thought Junior Would Take Over"
Many mistakenly fall into a common trap of assuming one
of their children will step in and carry on the family business. But let's face
it — sometimes our kids think our jobs are boring and want no part of it.
Consider the plight of Mike, a trucking company owner
with whom we work. He started the company from scratch about 25 years ago and
wants to retire in about 10 years. He regularly encourages his 19-year-old son,
Mike Jr., who is a parts runner for the company, to learn the ropes of
management.
The problem is that Mike Jr. has never expressed any
interest in running the company. Despite his dad’s offer to train and mentor him
for eventual ownership, Mike Jr. has career visions of creating video games, and
the rough and tumble world of the trucking industry is just not his style. Mike
Sr., who is in his early 60s, faces the prospect of having to sell his company,
which he had hoped would stay in the family for at least one more generation.
Family Feud
Then there’s Jerry, who owned a local chain of popular
breakfast and lunch restaurants, until he died unexpectedly last year. He left
the company to his wife, Sue, with a small percentage of shares also left to
each of their three children.
Sue has had enough of the restaurant business, and,
without Jerry, she lacks the drive to continue the company’s success in a very
competitive industry. Their oldest child, Rick, has managed one of the
restaurants since he got out of college and expanded his role, alongside his
mother, after Jerry’s death. Rick wants to buy out his two sisters so he can run
the company on his own. While his sister Diane has never managed any part of the
business, she decides that she wants the same thing. Unfortunately, they have no
desire to run it together, and Diane refuses to sell her shares for less than a
grossly inflated price.
Sue wants to keep the business in the family, but she
has been unable to broker a decision that either side sees as fair. A legal
battle is looming.
Don't Put It Off, Do It Now
In these two examples, we have a father putting off
succession planning to his own financial detriment, and a mother too afraid of
hurting anybody's feelings to make a decision that's best for the business.
Both situations could have been avoided through proper
planning. I encourage you to think about what you want to have happen to your
businesses after you’re gone, and consider what might happen if you don't start
to make some important choices now.
Adapted from the Daily Plan-It newsletter.
Hoopes, Adams & Alexander, PLC, is a Chandler, Arizona, law firm offering
services to Phoenix-area clients in the areas of estate planning, entity
formation, commercial and real estate transactions, and civil litigation. |
