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Ric Gregoria, president of Sarasota-based Williams Parker Attorneys at Law and a former CPA, has worked with dozens of family businesses. Some of the mistakes he’s seen family businesses make in the succession process include:
• Starting too late or not starting at all. “Start early,” Gregoria says in an email. “Successful transition takes time, training and communication.”
• Presuming a particular family member has the desire or ability to act as successor when they may lack one or both qualities. “Just because they are “blood” doesn’t mean they have the necessary skill set to successfully run the business enterprise,” Gregoria says.
• Not getting key members of the business to understand and take into account their thoughts on succession. “Buy-in and retention of key personnel is a critical component of success,” he says.
• Forgetting that respect is earned not commanded. “Once the prospective successor has been identified,” Gregoria says, “develop a concerted program to teach them about all aspects of the business from the ground up.”
• Failure to properly communicate the succession plan to family members in advance which leads to family discord. “Conduct regular family meetings to develop and communicate the family mission statement and business succession plan so that all understand the plan and have an opportunity to ask questions and provide input,” he says. “Such meetings should address all aspects of the succession planning including governance and compensation.”
• Failure to properly plan for liquidity for estates taxes, buy-out or implementation of other aspects of the succession plan. Gregoria recommends a business “conduct an estate tax analysis to make certain there will be sufficient liquidity for the payment of estate taxes without unduly burdening the business enterprise.”
Ric Gregoria specializes in counseling high-net-worth individuals, families, and business owners regarding intergenerational wealth transfers and business succession matters.
Click the links below to hear best practices from other families working through business succession and experts who have helped others.
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