You’re Family’s Business

If you have a family business have you given thought to a succession plan? Do you consider it a given that your children will take over for you? Are they qualified to run your business? Do they want to run your business? What is the best way to transfer and preserve the wealth you have created? These are a few of the questions you need to consider in the succession plan for your business.

Thomas William Dean PhD has published an interesting book that every family business owner should read entitled Every Family’s Business. He also has published a list of twelve questions that should be asked and answered annually between the parent and each of the children in your business. You can find these questions at his website www.everyfamilysbusiness.com.

I will list these questions here for discussion purposes:

1. What does our business look like in five years?
2. Are you interested in selling your stock? If yes, to whom?
3. Are you interested in buying stock and acquiring control?
4. Do you understand and agree that, in the interest of maximizing shareholder value, this business can be sold to a third party at any time?
5. I agree that within the next 60 days I will put in place a special compensation formula for (child’s name) in the event that the business is sold in the next five years.
6. As a fundamental principle I understand that from time to time we will receive unsolicited offers from third parties to acquire the business. These offers will be considered and    accepted at the discretion of the controlling shareholder and supported by (Child’s name).
7. In preparation for the annual update of this blueprint I will arrange for an updated valuation of the business and will calculate whether there is an appropriate amount of insurance in place. I will furnish evidence that this has been done and that estate taxes will not impair the ability of this corporation to function after my death.
8. List at least three items in each of the following four categories that could affect the health of the business over the next five years.
a. Strengths
b. Weaknesses
c. Opportunities
d. Threats
9. To secure our future prosperity together we should either:
a. Continue to run our business and invest more of our money in our company.
b. Proactively pursue the sale of our company.
10. Within 60 days of completing this blueprint we will complete a salary and bonus compensation review for (child’s name).
11. I agree to conduct an annual performance review of (Child’s name). This review will measure performance against mutually agreed on and achievable goals and objectives. New goals and objective will be set for the coming year.
12. Within 60 days of completing this blueprint I will present up-to-date job descriptions to all family members working in the business that clearly describe their duties and responsibilities. I will include an up-to-date organization chart. Family members working in the company will adhere to the company’s policies and procedures.

What I find interesting about this list of questions is that it addresses each of the elephants in the room as it pertains to the way the parent needs to run the business and how the children need to participate in the business. If these questions are answered and addressed honestly you will create a blueprint for maximizing wealth and passing this wealth on to the next generation. As a partner with B2B CFO® in Chicago I help business owners maximize the value of their business and achieve more success.