Meeting the Challenges of Succession in the Family Firm

Meeting the Challenges of Succession
in the Family Firm
by Thomas Davidow and Richard Narva
Succession from one generation to another does not happen by accident in a family-owned business.If you are interested in succession or the continuity of your business, you misunderstand that planning for that continuity is the critical factor.We believe the failure to adequately address the topic of succession is the primary reason that only 30% of family businesses continue into the second generation and that only 10% more continue into the third.

Succession exists as an underlying issue in all family firms, playing a tremendously important role in the life of the family, as well as the life of the business.Yet owners and operators of family enterprises rarely address succession, apparently because of its powerful psychological implications, which can sometimes be overwhelming.

Admittedly Succession Is A Complicated Topic

Thinking about and dealing with succession can be extremely demanding, both emotionally and intellectually.When you begin to examine the concept of succession, you must deal with aging,mortality, control and power, just for starters.In addition, the business issues that founders must simultaneously deal with include ownership, management, strategic planning, and   professional relationships from one generation with the next generation.These relationships include key non-family managers, clients, suppliers, lawyers, accountants and bankers. More…

Protecting Seniors’ Interests in a Business Transition

PROTECTING SENIORS’ INTERESTS IN A BUSINESS TRANSITION

Peter Berenson, CPA, PFS

Forman, Itzkowitz, Berenson & LaGreca

For seniors, transitioning their business to the next generation can be, in some ways, like teaching their child to fly from the proverbial family nest to independent adulthood.  During the growth and developmental years of both the business and the child, seniors typically nurture both with love and money and build emotional bonds.  Then, when they contemplate separation from each, the senior/father begins to assess the related risks.

Understanding business transition risks and how to protect against them requires a brief overview of the two basic transition types: management control and stock ownership.  These can occur simultaneously or independently, and gradually or instantly.  In other words, seniors can transfer daily and strategic management to the next generation while retaining ownership.  Or, they can transition some or all of the ownership to the next generation while retaining daily and strategic management.  Or, both types of transitions can occur simultaneously.  The major difference between the two types is that as long as seniors own more than fifty percent of their business they have the legal authority to grant and/or reclaim management control.  Once the fifty percent threshold is crossed, this legal authority is substantially diminished.  Nonetheless, while the degree of risk may differ with either type of transition, the nature of the risks is the same. More…