Sometimes the need for some hearty succession planning comes from the assessment of the direction of a business.
And usually succession planning leads to, and, underpins estate planning.
Let me relate an example to you.
Jack was at a cross roads. He was on the wrong side of 60 and had built a substantial haulage business. He was a rough-and-sensible type of guy and was possessed of a beguiling directness.
Two of his sons were working in the business. One had come out of Commerce, was computer-savvy and dedicated to applying normal business principles to his business. The other was a real character who looked after logistics and did everything on the run.
Brian, one of the sons, had assumed the role of general manager with the imprimatur of his father. But his father had some resistance to a full handover. Brian told me that he would like to do some work defining the future of the business.
There were a number of issues simmering in the family that needed to be tackled.
Firstly, there were five (5) boys (two of which were involved in the business. Jack felt that he should be treating his children equally and his present Will provided for them to inherit all his business and non business assets equally.
Secondly, there was the role of the two boys in his business. How would that be settled to both’s satisfaction? Could they agree on where the business should go?
We started off with a goal-setting exercise.
Jack and the two boys worked through a structured exercise that I facilitated.
It lasted over two mornings and provided some interesting outcomes.
The goal for the business and a rudimentary strategies plan was ascertained and developed. Discussion was robust. There were few arguments but much to be sorted out.
The main issue that arose was that Dad wanted his business to be preserved.
I told him that there was tension between his conflicting objectives: Treating all his boys equally and keeping the business.
He was going to have to make some choices. It was unlikely that the five boys would be able to work together to grow the business. Two might be able to. And besides there was a history of heated debate between the five boys – they simply were too different!
One strategy to consider was that Jack could sell the business to the two boys who wanted it and provide the equality by bequeathing his non-business assets to the other three boys. Also he could create some pay-out figure where the boys who assumed the business owed something to the others. But this is always difficult because the business won’t survive at all if it is over-burdened with debt.
Jack was warm to this notion and asked that we develop an illustration of how this would work. I said I would do this and report back.
Several weeks later Brian rang and said that his other brother had told his father that he wanted to leave the business to pursue other interests.
This has been my experience with the goal-setting exercise. As a family comes together to determine its purpose there will be some who don’t like the outcomes. It also forces participants to review their own direction and make choices.
So at our next meeting we only had one boy left to chew the fat with Dad. The exercise had been freed-up considerably.
I placed the scenarios on the table and worked through them.
It was decided that an independent valuation of the business was needed as a foundation for equality and that Jack would convene a family meeting to place the proposal on the table.
When that had been settled, Dad and Mum would need to rearrange their Wills to ensure that the succession plan was cemented in upon their respective demises.
And that is why succession planning underpins good estate planning.
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Disclaimer: This post is just the view of the blogger only. It should not be relied upon as susbtitute for professional advice regading actual facts or circumstances. The blogger do not accept any liablity for any injury, loss or damage resulting from any person acting, or referring to act, in reliance on all or part of these materials.
