The key to a successful succession plan is the ability of the business to produce income and to provide value for the family after death of the owner. Following are a set of questions that are helpful in determining the answers to these two questions:
- Will the business continue to provide sufficient income for the surviving spouse and children?
- Is the business prosperous enough to afford professional management (including successors) and still make distributions to the family members?
- If the owner is incapacitated, is there adequate disability insurance to meet the immediate needs of the business and the owner's family?
- If the business needs to be sold to third parties, should that be done during the owner's lifetime or after the owner's death?
- Is there a successor to the ownership and management within the family circle?
The next most important key to successful succession is the level of trust within a family. If the level of trust is high, succession planning is most likely possible given that the business is viable and profitable. If the level of trust is low, steps should be taken to build a healthy trusting relationship among family members before, during and after the succession planning process. The answer to the following question will determine the level of trust within the system: Do the stakeholders act in a manner consistent with the best interest of all stakeholders and not act only in one's self-interest? The degree to which any stakeholders acts selflessly, is the degree to which that stakeholder is trusted.
If there is sufficient income and value together with a qualified successor and high trust among family members, the succession of ownership and management should be successful. If any of the ingredients is missing, more work must be done. There are many good consultants and advisers who can help.
