Key Issues in Succession Planning for Family Businesses

HBO’s hit TV show Succession introduced millions of viewers to the high stakes of business succession planning for family businesses. While very few family businesses are as large as Waystar Royco, most of the same considerations are at play. If you’re concerned about what will happen to your family business when you are no longer able to run it, a Springfield business lawyer can help you plan for the inevitable. 

Common Challenges in Business Succession Planning 

Every family business is unique, and therefore every family business succession plan will need to overcome unique challenges. However, some of the most common challenges that arise when crafting and implementing business succession plans include: 

• Emotional attachment: It’s not uncommon for the people who own and manage family businesses to be the same people who founded them, which can lead to strong emotional attachments to the business and reluctance to hand over the reins to someone else. This can cause “we’ve always done it this way” mindsets to interfere with necessary reforms.
• Internecine conflict: Intra-family conflicts are often a corollary of the emotional attachments family members have in the family business. In many cases, such conflicts — e.g., sibling rivalries, allegations of favoritism, and long-held grudges — can spill over into business operations. 
• Lack of planning: Family businesses typically are less sophisticated than big businesses, meaning that they are less likely to have developed a succession plan or chosen successors very far in advance. This can lead to haphazard succession plans that unintentionally omit key considerations and unpreparedness on the part of the chosen successors. 
• Conflict between family interests and business interests: Family businesses are much more likely than big businesses to engage in business decisions that are influenced by family interests rather than business interests. For example, the family may feel strongly about placing Person A in charge of bookkeeping due to their affection for that person, even though Person B would be an objectively better choice. 
• Reluctance to hire external leadership: A common problem in family business succession planning is a strong preference for management to remain within the family, which is in no way unreasonable. But in some cases there may not be a family member who is qualified to perform the business functions being transitioned, and the family may resist looking for external candidates. 
• Founder’s syndrome: Founder’s syndrome is a phenomenon in which the founder of a business, who is accustomed to exercising broad control, struggles to step aside completely or share their duties with someone else, leading to inefficiency, micromanagement, and instability. While all businesses can suffer from founder’s syndrome, it can be particularly problematic in family businesses, as it also implicates familial loyalty. 

These are just a handful of the challenges we often see in business succession planning for family businesses. While these problems and others are intimidating, they are not insurmountable. The best way to overcome them is to work with a Springfield business lawyer who can take competing interests into consideration, give them the proper weight, and propose a solution that works best for both the family and the business. 

Elements of a Succession Plan 

When crafting a business succession plan, our Springfield business lawyers often focus on the following elements:  

Identifying Needs

One of the most important elements of business succession planning is identifying the business functions that need to be transitioned. For example, if the founder and CEO is near retirement, you will need to start the search for a new chief executive to manage the business. In some cases, multiple business functions can be combined into a single role or vice-versa. Also, consider whether the way a particular business function has worked in the past has served the business well or if some processes are ripe for reform. 

Choosing Successors 

When choosing a successor to perform the functions of the role in question, choose someone based on how well-qualified they are rather than how much you like them or how close they are to the family. For example, consider: 

• Their leadership skills
• Their experience in the industry
• Their track record of performing the necessary functions
• Their ability to handle pressure
• The extent to which they are a good fit with the company’s culture
• Their alignment with the company’s values

In many cases, a person who is already involved in the business (e.g., a “right-hand man”) may be able to check all of these boxes satisfactorily. 

Training and Development 

One of the best ways to ensure a smooth transition and continuity of operations is to begin training and developing successors before they step into a new role. For example, if the CEO or another high-ranking person is planning on leaving the company or retiring in the near- to medium-term future, identify potential successors and begin training them to take over well ahead of time.  

Legal and Financial Considerations 

Wills and trusts are useful tools for passing business interests along to successors, making estate planning considerations a key component of business succession planning. For example, business owners can establish trusts to transfer ownership of the business to their beneficiaries, thereby avoiding probate and potentially reducing or eliminating estate taxes. Business owners should also consider executing a power of attorney that names an attorney in fact to assume their duties in the event that they become incapacitated. 

Communication 

Even the best-laid business succession plan will be ineffective if it is not communicated to family members, employees, and other stakeholders. After you craft your succession plan, make sure everyone involved has a copy of it and understands what it requires of them. 

Make a Plan With Help From a Springfield Business Lawyer 

No matter how big or small your family business is, you’ve invested years of hard work into building it into what it is, and that kind of investment deserves a comprehensive succession plan. For more information about crafting a succession plan for your family business, please contact a Springfield business lawyer at the LifeGen Law Group by calling 417-823-9898 or using our online contact form.