The risk of not having a succession plan.

Tuesday 30 June 2015

succession planning

Succession Planning is such an important foundation stone of your life and your legacy, that it deserves respect and your committed attention. Regretfully many successful business people stumble at this last hurdle.

Succession is often not considered until the last moment when a business owner is ready to step aside, but as with all things in life the unexpected can happen at any time. The following is a short list of real examples (all names and details changed for anonymity) which may serve as a reminder as to what can happen when succession planning is felt too late:

  • A third generation business owned by two brothers was brought to its knees by the unexpected death of one of the brothers. There was no shareholder’s agreement or thought of a succession process between the brothers. The surviving brother carried not only the weight of the loss of his younger brother but the obligation to pay out his sister-in-law in what became a prolonged and difficult dispute over share value.
  • The wealth of a family passed over to the 10 children upon the death of their father represented by equal shareholding in the family businesses. The ages of the children varied from 60 to 35 years with the elder children being financially well off and the younger children not so well off. There were no agreements in place for the ongoing management of the businesses or the conduct of shareholders. Over the subsequent years the family became divided and family wealth diminished as family members argued over capital and dividend distributions.
  • A successful business had been built up over a lifetime’s work and the founder decided to put his succession matters in order to ensure his son would succeed him. In seeking advice he discovered that through the taxation planning and financing strategies that had been adopted over the years, the bulk of the wealth was held within entities to which his son had little entitlement. In fact it was his step-children who potentially could claim most of the wealth. Further, it was unclear who would control the various entities and if this was not remedied, it may well be left to the courts to resolve. The owner committed to resolve these matters immediately.

By considering succession early, you are enabling compounding of wealth across generations while ensuring family unity, individual growth and a sense of contribution.