Continuity 



Moving the Business into the Next Generation 



KIRK B. LEONI 



Family businesses generate all the challenges 

 faced by other small businesses, but add the 

 elements of family dynamics to the mix. Sev- 

 enty percent of family businesses never make it to 

 the second generation. Recognizing these challenges 

 early in the business life cycle can result in minimiz- 

 ing taxes, smoothing management transition, and 

 avoiding family conflict. 



Family businesses often do not formulate compre- 

 hensive plans for dealing with succession issues. Fre- 

 quently the entrepreneur is so busy with current 

 challenges that he or she does not feel they can af- 

 ford the time to address these issues. Unfortunately, 

 this situation is like the woodcutter who cannot take 

 the time to sharpen her saw because she is too far 

 behind schedule cutting the wood. 



Comprehensive succession planning involves stra- 

 tegic business planning, management succession 

 planning, estate planning, entity (form of business) 

 planning, and tax, finance, and insurance planning. 

 The sophistication and complexity of this planning is 

 contingent upon the size and complexity of the busi- 

 ness, the financial needs of family members, and the 

 current financial health of the business. 



The following checklist can provide a guideline 

 for breaking this process down to manageable pieces. 

 This will help to ensure that major concerns are not 

 overlooked. 



Current Owners' Wishes 



1. Current owners meet to discuss their objectives 

 regarding transition of the business to family mem- 

 bers and to outline their financial needs through 

 retirement 



2. Discuss strengths/weaknesses of second genera- 

 tion family members expected to be involved in the 

 business 



3. Meet with attorneys and accountants to review 



current estate planning and to review alternatives 

 for meeting financial objectives 



4. Consider: 



Gifting stock 



Establishing retirement plans 



Insurance funding 



Second generation stock purchase 



Updating current will 



Change of business form (proprietorship, 



partnership, LLC, C-corporation, S-corporation) 



Do not expect to reach final decisions at this 

 point; the purpose of this phase is to identify some 

 alternatives and to identify the issues that do not 

 have ready solutions. 



After some time to consider the above alternatives 

 and possible solutions, meet again with your advi- 

 sors to map out a preliminary plan. 



Communication 



1. Communicate your wishes regarding the future 

 with the next generation 



2. Identify areas where the objectives of the next 

 generation are in conflict with the "plan" 



3. Ensure that the next generation shares the "vision" 



4. Discuss the sale of the business as an alternative 

 to the plan (This is an important step, as the appeal 

 of continuing to manage the family business must be 

 evaluated in contrast with the short-term financial 

 rewards of a sale) 



Plan Implementation 



In conjunction with your lawyer, accountant, banker 

 and insurance broker: 



1. Review current retirement plans (401k, profit- 



All GUST. SEPTEMBER. 1998 



