Key Elements of a Family Business Succession Plan

A family business succession plan is a multifaceted plan. When done correctly, a succession plan for the family business addresses various key issues in the business as well as at a personal level.

There are a number of critical elements you need to consider for any business plan. The following are six key areas your family business succession plan needs to address.

First, make sure you address your own personal retirement planning. Without this step, it is hard to know how long you may need to continue working in order to build your retirement resources, or how much money you can expect to have when you are ready to retire. Going through the retirement planning process will provide you with the insight you need to answer the dual questions of "When can I retire?" and "How much will I need?" The answers to these questions can be critical in deciding the future fate of the family business. The terms and conditions under which the family business may be transferred to the next-generation owners with respect to retirement payments, continuation of salary and possible payments for purchase of stock are all issues that need to be resolved as they relate to the current owner's personal retirement plan.

Second, another item to complete is the current owner's personal estate planning. Understanding what assets you have and how you would like them allocated after you are gone can relieve a lot of anxiety and strife among family members. Effective estate planning not only fulfills your wishes and intents, but it can also preserve your wealth for future generations. Also, depending on your situation, the estate plan may need to include key elements to complete the business succession plan and a transfer of ownership among next-generation owners. In addition, you may also want to take action to make sure that the family members who are not involved in the family business receive a reallocation of assets to keep the distribution of assets equal or "fair" within the family. The personal estate plan is often interlinked with the family business succession plan.

Third, few family business owners that I encounter do not maintain a written emergency plan. Your emergency plan ( should consist of a clear set of instructions about who the owner's spouse or other relative should talk to in the event of the owner's unexpected incapacitation or passing. It should outline the key individuals at the company, as well as trusted advisors on the outside, and what they have been instructed to do. In order for the trusted advisors to be of any assistance to your family, you need to be proactive and provide them with all of the information that will be necessary in the event of your incapacity or death, so that they may provide effective assistance to your family regarding the ongoing business affairs of your family business.

Fourth, creating or reviewing and updating your existing shareholder agreement is another key step in the succession planning process. Make sure the agreement reflects the shareholders' current intentions. This becomes particularly important as the shareholder pool changes when the family business ownership gets passed down to future generations. The shareholder agreement is not a "one-and-done" type document. In the event that you are implementing a succession plan to next-generation owners and actively transferring ownership to them, the shareholder agreement needs to reflect those types of changes in the ownership pool of the family business and also reflect the overall plan for how the ownership of the business will be transferred from the current owners to the next-generation owners.

Fifth, an area that is often underappreciated or overlooked is instituting more formal governance processes for the business. This includes developing a "family employment policy." The following is a resource that may be helpful to guide you and your thinking in the right direction: Another resource for reviewing strategies for family compensation can be found at And the following resource may be helpful for establishing a board of directors or advisors in overseeing the current family business operations and the transition of ownership to a new generation of owners:

Sixth, looking into developing training platforms for the next generation is also critical to assist them in succeeding in their ownership and operation of the family business. A resource in this area to consult is This will not only help the next-generation owners learn about the business, but also about leadership and what it takes to run the business.

The above action items are only a brief reference point regarding the overall broad areas that should be addressed in planning for the succession of the family business. Each of these reference points requires a rather extensive analysis and work to be done between yourself and your trusted advisors to create the right succession plan for you and your family business.

Addressing these six key elements of a family business succession plan will not only improve your chances of success, but it will also likely improve the long-term value of your family company.

Remember, planning to plan is not a plan.

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