Succession Planning, or Transition Planning, can be simply defined as the orderly process of transferring responsibility, management and ownership from one generation to the next. Our experience working with business-owning families reveals that the order in which each of these separate transfers take place is a crucial element in a successful transition.
Attempting to do things in the wrong order, or even accidentally doing things in the wrong order, usually results in disruption and spoiled family and business relationships.
- The next generation does not have an understanding of finances, or has not been given the opportunity to understand the finances of the business after five years in the business,
- The senior generation is mentally and physically retired from the business, but is still monetarily tied to the business,
- The business is unprofitable,
- The inability to reduce consumption or reduce draws from the business during times of low profitability,
- Daughters-in-law and sons-in-law have not been allowed to review the finances of the business even though they may have signed for loans,
- The senior generation’s retirement plan and majority of net worth remains inside the family business (i.e. There is no diversification and all eggs are in one basket),
- The next generation has a Spoiled Brat attitude and is simply not appreciative of the opportunities they have been afforded,
- Failure of the senior generation to accept new ideas or challenges to thinking,
- Treating all family members equally instead of equitably,
- Failure to develop and execute critical planning documents which can create chaos, family and business disintegration, huge legal fees, loss of privacy and control and excessive tax burdens.
You already know it is not easy owning a family business. There are a lot of moving parts. Unfortunately, if you are planning to transition your family farm business to the next generation, some of the hardest work you will ever do is still in your future.