Let me be specific: Your business is owned by multiple owners: for example, two or more brothers (and/or sisters). Or cousins. Or aunts/uncles and nephews (or nieces). Or two or more unrelated (by blood or marriage) owners. Or any combination of the foregoing. Assume the business has prospered. So have the owners. Everyone gets along fine when it comes to growing or running the business.
But mention transfer of ownership. Or succession planning silence. Uncertainty. Fear. Can’t agree on price, terms, when, to whom to make the transfer. Exactly what to do if someone dies, retires or becomes disabled.
Why is the above scenario so true? My 50-plus years of experience in this area pinpoints one reason: The lack of a single in-charge and in-control voice. When you have a mom/dad-to-the-kids situation, everyone knows dad (or mom) is boss. So they listen.
All the other ownership situations listed above have two or more voices of ownership. Each additional voice adds to and complicates the problems. And many owners have spouses more voices.
If one of the owners dies before a comprehensive transfer/succession plan is in place, there are typically two winners: The IRS and the lawyers. Everyone else the family of the deceased and the surviving business owners loses. We recently put in a succession plan for five brothers (each owning 20 percent of Success Co.) None of the brothers, or their advisors could come up with a satisfactory succession plan. The process of how to solve the above problem may be more important than the solution. Following is the eight-step process, which we have been using for 27 years:
1. Review a package (the three items listed at the end of this article) of information from each brother.
2. Separately interview each of the brothers (by telephone) to get goals for themselves, their family and Success Co.
3. Arrange an all-day meeting so everyone (including Success Co.’s CPA and lawyer) is in the same room at the same time.
4. Draw a tight agenda crafted from what we learned in items 1 and 2.
5. Open the meeting with each brother reciting their goals to the group. With minor exceptions the goals were true to the telephone interviews.
6. Make three lists (a) items everyone agrees to (the biggest agreed-to-item was “want the business to continue in the family”); (b) Minor disagreements and (c) major disagreements. We knew (because of our advance interviews) what would be on the three lists.
7. Next, we gave a short seminar on what strategies to use and how each would fit into a comprehensive plan. The (a) items were easy. (We did them first); the (b) items (with one exception it became a (c) item) were conquered without too much difficulty; the (c) items took the rest of the day. All issues were resolved except one.
8. Finally, we implemented the plan over the next two months (signed documents) while working on the open issue, which involved the value of Success Co. It was never completely resolved, but we created a strategy to overfund (using insurance) the eventual buyout that satisfied even the brother pushing for the highest value.
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