Succession: Not Just TV Drama

Television shows like Succession and a newly released book on Rupert Murdoch’s family dramatize the inherent challenges involved for business owners developing and implementing plans to sell or transition ownership of their businesses. Last week, I spoke on this very topic at the Midwest Agents Forum in Chicago, a gathering of more than 200 of the largest and most successful Allstate Agency Owners from across the country. While these business owners face certain obstacles unique to their relationship with Allstate, in many respects they are no different from the owner of a tool and die shop or a medical practice. No matter the business or industry, advance planning is paramount.

You Can’t Take it with You.

To develop a plan, owners must first acknowledge their own mortality. Retirement does not come naturally to a lot of hard-charging entrepreneurs. Still, even if they would like to work forever, science is against them. Whether through a planned transition to family or a third party or through an untimely death, every business faces a critical change in ownership. Some survive and thrive; many crash and burn. The more planning, the better the chance of success.

Identify the Next Generation of Ownership

Once a business owner accepts the fact that she will not be around forever, she can start to identify potential successors. Often, family members (especially children) are obvious candidates. They may or may not be the best candidates. For the most part, we all love our children, and we likely overestimate their talents and underestimate their shortcomings. Business owners must make clear-eyed assessments of whether their children have both the interest and the ability to succeed them. Sometimes, an unrelated employee or a competitor presents a stronger option.

Nail down a Written Agreement

If a business owner identifies a strong successor, he can work with that person to map out a fair transition. For family … if the owner has built enough personal wealth … it may be appropriate to gift some or all of the ownership. For a business partner or an outsider, an agreed valuation will be necessary. Price, terms, and outside financing all become critical points of discussion. Done properly, a purchase agreement allows the original owner to reap the benefits of what he has built while still providing the successor with sufficient capital and cash flow to maintain uninterrupted operations.

Don’t Forget the Unexpected

For many Allstate Agency owners, their agency represents their largest asset. The same is true for many business owners. Still, the business is not the only asset, and the planning should not stop with a business succession plan. Rather, a good business succession fits hand in glove with a solid estate plan that will govern the eventual distribution of the entirety of a business owner’s assets. Additionally, that estate plan will include powers of attorney, medical directives, life insurance policies, and other tools to protect the business owner, her family, and her assets upon hear disability or death.

Business transitions can be complex, but planning ahead makes all the difference. Whether you're just starting to think about succession or you're ready to put a plan in place, having the right guidance is key. If you’d like to explore your options, we’re here to help. Call us today at 248.477.6300.