If you own and operate a family business, what will happen to it after you are no longer involved? How will you ensure the continuity of the company so other family members will always be leading the way and calling the shots?

If you're like many family business owners, you may not have given much thought to those questions. The essence of a family business transcends the daily operations and financial gains—it embodies a legacy interwoven with personal relationships and shared achievements. Succession planning, therefore, is not merely a transaction or a change in leadership; it is a significant passage that marks the continuation of values and visions nurtured over generations.

For many, the thought of succession brings a mix of anticipation and apprehension. It involves critical decisions that will impact not just the immediate family but also employees, community relationships, and long-standing business partnerships. This complex process requires a team of industry experts to guide you through a strategy that encompasses more than legal structures and financial arrangements.

At Parcion, we partner with business owners and their families to unlock the true potential of their wealth and navigate delicate processes. As you consider the future of your family business, remember that it's not just about passing on responsibilities; it's about continuing a legacy aligned with your values that supports your family and community. We find that many family business owners are intensely focused on the daily running of their companies and not spending enough time planning for a potential transition, which can lead to issues.

AVOIDING TROUBLE

That's where family business succession planning comes in. Effective succession planning is often essential to sustain a family-owned and operated company. Failure to effectively transition the family business can have significant adverse consequences, such as:

• Family conflicts
• Legal battles
• Bad publicity for family members and the firm
• Higher tax burdens on the parties
• The demise of the company

Family business succession planning is a process—not a one-time event—that happens over time, with modifications and tweaks along the way.

THREE ASPECTS OF FAMILY BUSINESS SUCCESSION

There are three main aspects to family business succession, and they all play essential and synergistic roles. For family business succession to deliver intended results, there needs to be:

Capable Family Business Successors + Family Harmony + Wealth Planning = Effective Family Business Succession

• A family business successor (or successors) capable of taking over the company and running it well
• A sense of balance within the family so that personal entanglements do not derail the firm
• A wealth plan that smartly transfers ownership of the family business to successors in a way that works best for the family and the business

If any of these three aspects is out of sync, there will be increased pressures on the family business successors and increased risk that the company (and all those associated with it) will suffer.

ASPECT 1: CAPABLE FAMILY BUSINESS SUCCESSORS

It is not uncommon for heirs to believe they can lead the family business, even though an objective, rational assessment would put that conclusion in doubt. It is up to the current family business owners, and perhaps other key family members, to ensure that the intended family business successors are genuinely prepared to take over the company.

There are various ways families can prepare successors to take over the business, including encouraging them to:

• Obtain advanced degrees related to the business
• Get experience at other companies
• Take on various jobs within the family business

Regardless of the approach, the decision-makers involved in this process must be able to identify the list of key attributes and expertise a family business successor needs to have—and be able to check them off the list with a candidate. It's not always possible to absolutely ensure a designated family business successor is completely up to speed, of course. But the aim should be to work toward that goal, which usually entails starting as early as possible.

Note: In cases where the chosen family business successor is not truly ready, contingency plans can be put in place. When the selected successor meets certain criteria, they can then obtain control of the company.

ASPECT 2: FAMILY HARMONY

In many family businesses, harmony within the family is a key objective. That doesn't necessarily mean the goal is for all the family members involved with the business to get along famously. Rather, the intent is often for family members to simply avoid clashing with each other to an extent that could be detrimental to the family business and disastrous for family relationships.

Family harmony is fostered when the respective family members understand what is going to happen to the family business and other assets when the primary owner steps down. This does not automatically mean everyone will be happy about how the family wealth will be divided, of course. The key is for everyone to be aware of the plan and generally accepting of it. When this occurs, it's often easier to deal with possible future conflicts.

ASPECT 3: WEALTH PLANNING

Achieving family harmony and avoiding fights usually require a well-structured wealth plan. There are many subcategories of wealth planning that are relevant to families who own a business. For example:

• A formal succession plan that clearly specifies the transfer of ownership and control of the family business as well as any appropriate legal structures that are in place. This type of plan can be especially important when the family business is being transitioned while the current family owners and executives are still alive.
• An estate plan is interconnected with the succession plan. It addresses the financial and legal issues in case of death. When family businesses are inherited without tying in solutions for the capabilities of family business successors and possibly family harmony, there is high potential for family confrontations.
• A creditor protection plan may also be beneficial to families. While the issue of protecting assets from creditors is not directly tied to the transition, it can prove worthwhile to address given the amount of other planning that is being done.

Warning: Don't over-focus on wealth planning at the expense of the other two issues outlined above. Some family business owners become so concerned about wealth planning issues—such as getting the company in the hands of heirs without paying taxes—that they lose sight of the bigger picture: ensuring the family business is set up to thrive in the years ahead. The best family business succession plans balance out all three aspects and do not overemphasize any aspect to the detriment of another.

A TEAM OF EXPERTS

Succession planning requires proactive, thoughtful decision-making that resonates with the core values of your family and business. It is important to begin these conversations early. In general, the family business successions that work best for everyone involved often rely on a team of experts to guide the family through the complexities and nuances as well as to provide industry insights. At Parcion, we are dedicated to supporting families in these critical moments by providing clarity, strategic guidance, and a team of professionals invested in their success.

In selecting the best experts to help transition to a successor, family business owners can ensure a smooth transition with the careful consideration it deserves. Succession planning is not just a business decision but a pivotal moment that honors your life's work while paving the way for future generations.