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Different Choices, Different Plans
One of the biggest mistakes a CEO can make is assuming that all family members should be treated equally. It’s more important to be fair, Merryman says, and “fair is not always equal.”
One family Merryman counseled owned two restaurants and investment real estate. The son worked in the restaurant business; the two daughters did not.
The parents decided to sell one restaurant, then give the son the business and the daughters the rest. “The dollars aren’t going to be exact,” Merryman says, but the plan fit the family’s goals.
Keep in mind there are two types of succession planning. One is for ownership—involving wills, asset transfers and tax minimization.
The other is for management—deciding who is going to run the business and make the strategic decisions. Management succession planning gets ignored 99 percent of the time, says Wayne Rivers, President of the Family Business Institute.
If your management succession plan is simply making your kids wait until you keel over, that’s not fair to them, Rivers adds.
How to Begin
The best way to start succession planning is to find a trusted outsider—be it financial adviser, attorney or accountant—to help the family assess its situation. Although few family-run businesses do it, assembling a board of directors with family members and outsiders is also a smart move.
Then start developing “rules of the road,” Merryman advises. These rules spell out, for example, how family members can enter and exit the business and their compensation. You can require that the next generation get college degrees and outside work experience.
Rethink that old belief that the kids ought to start at the bottom, learn every job and work their way up, Rivers advises. Your daughter could start her career holding traffic signs at a construction site, he says, but the company would do better if she were honing marketing skills that could double its sales.
When successors have finally been chosen, announce the decision, Merryman advises, even if succession isn’t imminent. “You can always make a change,” he says, “but you are better off announcing these things sooner rather than later. Uncertainty can lead to fear and anxiety.”
Yet the most carefully prepared plan is doomed to fail if the CEO does not relinquish control. Many owners worry about how the company will fare without them. Yet it’s seldom a one-person show, Rivers says. Every employee is a stakeholder.
“You have to realize that the company is bigger than you,” he says, “and the company should have a lifespan that exceeds yours.”
Earl McLain, CFP®, CLU®, ChFC®,
Senior Vice President, Wealth Advisor
440 Monticello Avenue, Ste 1100, Norfolk, VA 23510
earl.mclain@wellsfargo.com
Earl McLain, is a Wealth Advisor for the Greater Virginia region of Wells Fargo Private Bank. As part of Wells Fargo Private Bank, Mr. McLain is responsible for understanding and managing the financial situations for high net worth clients, by first identifying each client’s life goals and financial strategy, then by coordinating a team of specialists to comprehensively and systematically analyze their strategy in order to implement an objective wealth plan to help accomplish their life goals.
For more information Contact Earl at 757-667-3515
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Wells Fargo does not provide tax or legal advice. This article is for information and education purposes only, and should not be construed as tax or legal advice, which Wells Fargo and its affiliates cannot provide. Please consult your professional tax and legal advisors to determine how this information may apply to your own situation.
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