1633 E. Fourth Street, Suite 216
Santa Ana, CA 92701

Business Succession

3 Circles-Family-Business-LegacyFamily owned businesses are complex and planning for an internal succession is challenging. There are a number of issues to deal with in a variety of areas, including financial, personal and family dynamics, tax, legal and business operations. So where to start? We have identified and developed the 10 Succession Strategies® below to help you safely navigate the mine fields and create a smooth succession. These 10 Succession Strategies are not necessarily sequential and they do not all apply to every family business. Underlying all of these is the ongoing process of improving communication, providing opportunities for learning and education and developing skills in conflict resolution. The purpose is to create an environment in which the business and the family can thrive for the betterment of all involved.  [Access our free Self Assessment to determine how prepared you and your business are for succession.]

1. Family-Business AssessmentAre you, your family members and key personnel all “on the same page” regarding succession? What are their expectations? Is there support for your successor? What financial, legal and personal obstacles exist? Our first step is a 360° assessment process which includes gathering information about your family and business and interviewing as many of the stakeholders as possible, both inside and out of the business. Our goal is to understand all the relevant issues and the relationships between the family members.

2. Contingency PlanWhat would happen to the business and your family if you died today? Who would run things? What financial emergencies would this create? Who will fill the leadership vacuum? What taxes would be owed? How would your banker and vendors react? Are there any key employees you could not afford to lose? It is important to have contingency plans in place in the event of any emergency. For a family business, this usually includes a buy-sell agreement, estate plan and key person coverage. Even if you have all these in place, it is critical to ensure that they will all work together smoothly at the right time.

3. Core ValuesWhat values are most important to you and your family? What values have been key ingredients in the growth of your business? Have you shared these values and your beliefs with your key people? At the core of most successful family owned businesses is a set of shared values. These values should bring family members and employees together to work for a common goal. Succession involves major changes in the ownership and management structure of the organization. This is a critical time to identify, share and re-affirm the core values that will continue throughout the life of the business.

4. Business Strategic PlanIs your business well positioned for growth? What are the key drivers and metrics around which the business should be managed? Are you passing on a thriving or a stagnant enterprise to your successor? Only successful, growing businesses concern themselves with succession. Succession is about preparing the next group of owners and managers to take the business to the next level. A strategic plan is a blueprint developed with the input of your key employees and potential successors. Together you will create a shared vision to grow the business into the next generation and beyond.

5. Ownership TransitionHow will the current owners and managers gracefully exit the business? Is there an ongoing role that they can and should play in the future? Have you created financial security for the owners? In our experience, business owners are not willing to step away from the business unless they have financial security separate from the business. In addition, your skills and experience have value to the business. Choosing a role as a mentor, focusing on your passion in the business or serving on the Board of Directors is often a good transition during succession.

6. Family Participation GuidelinesHow do you hire, compensate, evaluate and promote family members? What are the qualities that the next CEO needs to lead the business successfully into the future? How will you choose the next successor? How will you ensure that the process appears “fair” to other key people and family members? How do you help family members utilize their full potential? How do you manage the expectations of family members? It is important to clearly communicate the opportunities and expectations for family members interested in working in the business. Establishing employment and work rules reduces family conflict and creates a sense of fairness rather than entitlement.

7. Business ValueHave you commissioned an independent valuation of the business? What is the value of your business and how was it determined? What are the key factors that affect the business value over time? What is the value for estate planning purposes and how does it differ from the value if you were to sell the business? A formal valuation is helpful to obtain financing, set a buy-out price, plan for estate taxes or develop a gifting strategy. We will help you define the purpose and focus for the business valuation, gather all the necessary information and coordinate with key advisors.

8. Legacy PlanningWhat will be your legacy? How will your family manage wealth in the future? What are the leadership skills that will be needed in the next several generations? How do you want to be remembered? You have created a successful business that positively impacts your employees, family members and the wider community. We will help you define the elements of your legacy.

9. Board of DirectorsDo you have an independent and effective Board of Directors? Does your Board create new ideas? Does it ask the right questions? Does it help generate the right kind of contacts for your business? Does it hold your management team accountable for results? Do you have the right people on your Board? A Board of Directors is a very cost effective way to bring a high level of expertise and talent into your business. You can utilize the experience of successful business people to take your firm to the “next level”. Independent, non-family, Board members bring new ideas, fresh perspectives and an expanded circle of contacts to your business.

10. Family MeetingsDoes the family meet regularly to discuss family issues and manage family assets? Does the family have a process for collaborative decision making and goal setting? Are you educating family members about business and financial issues? Family businesses require clear and open communication to be fully effective. Regular meetings foster good relationships, reduce conflict and clarify expectations. Similar to a fully functioning Board of Directors, family meetings can bring unique expertise and perspectives to the business if their input is solicited and valued.

Access our free Self Assessment to determine how prepared you and your business are for succession.

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Rachel Owens and William Sornstein are Registered Representatives with and Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor, member FINRA / SIPC. The LPL Financial registered representatives associated with this site may only discuss and/or transact securities business with residents of the following states: California, Arizona, Iowa, Nevada and Texas.