In Season 2 of Amy Sherman-Pallidino’s Amazon series “The Marvelous Mrs. Maisel”, the title character’s estranged husband, Joel, abruptly quits his job and finds himself working in his parents’ garment business. The more time that Joel spends working in the family business, the more he discovers that is not quite right with the family business. As Joel begins to spend time working in the family garment factory, he attempts to improve the business’s fortunes by attempting to fire inefficient employees and standardize its accounting. With each “reform” that he attempts, however, he learns from his father that there may well be a very logical reason behind an otherwise illogical business decision. For their part, Joel’s parents are surprised when he announces that he intends to continue working in the family business, as well as comically unprepared for the transition. While at least one critic has dubbed Joel’s plot “a snooze”, it provides a handy pop-culture example of some of the pitfalls in succession planning for a family business (not to mention an opportunity to reference the Triangle Shirtwaist factory fire).
A business succession plan is a plan for transferring ownership and management of a business when the owner is no longer in charge, whether that absence is due to death, disability (permanent or temporary), or retirement. In my prior posts in this series, I wrote about basic considerations for business owners in succession planning and special considerations in succession planning for businesses with more than one owner, as well as considerations for single-owner businesses. In this final post in this series, I discuss business succession planning for family businesses.
In order to develop a successful plan to transition ownership and operations of a family business from one generation to the next, careful planning – and ongoing communication – is key. Planning to keep a business in the family requires some additional decision-making on the part of the older generation. For example, if there is more than one child in the family, is it practical to leave an equal share of the business to each child, even if not all the children can be expected to participate in the business? Or, is a single member of the younger generation the logical successor to take control of the operations who should receive all, or a greater portion of, the ownership interest in the business?
In addition to identifying which family members are the successors in the business, it is important to consider timing. If retirement for the current owner is on the horizon, when will ownership and operations shift to the younger generation? Will responsibility for operations be transferred in proportion to ownership interest in the business, or will the younger generation be expected to assume control of operations before full ownership is transferred? Furthermore, how will the transfer of the ownership interest in the business be accomplished? Will parents be making a lifetime gift of the business to their children, leave the ownership interest in the business to the children as an inheritance, or will the next generation need to purchase the business?
Keeping a business in the family is the goal of many family business owners. Successfully accomplishing this goal takes long-term planning and communication between members of one generation and the next. Ready to discuss developing a succession plan for your family business? We can help!