Advertisement CORPORATE GROWTH & M&A JANUARY 19-25, 2015 S-23 SUCCESSION PLANNING Maintaining control Savvy business owners understand the difference between ownership and control of a business. When the owner elects to gift non-voting shares or a minority interest in the business, the owner maintains majority control. Is your family business ready for what comes next? helpful way to guide succession planning discussion. The board can be made up of family members and trusted advisers — but be aware that situaAs a family business owner, you are dedicated to tions where boards are completely internal seldom planning for the success and growth of your busiwork well, as too often no one is comfortable speakness. But ironically, one of the most important steps ing up. Bring in bankers, lawyers, or other people you need to take is to prepare for a time when you with expertise and experience in your no longer sit at the head of the table. industry. Although an advisory board Succession planning should start with doesn’t have true decision-making authorcommunication — and not just about ity, they are able to provide valuable input the business. Members of a family busiand suggestions for the direction your ness need to discuss life goals and what family business can and should take. they want to achieve both professionally A trusted friend can also help serve and personally. Whether your plan is to as an adviser —– and can sometimes be create a legacy by donating to a univerjust the person needed to remind you sity or to pass leadership and ownership that your decisions and actions impact MCRILL along to the next generation, knowing not only the business, but your famwhat you want to do with the rest of ily as well. Too often family business your life and how much it will cost gives you an owners pour 100% of themselves into their idea of the direction your family business needs business and ignore the family aspect; this can to take. And communicating that direction with be a tragic mistake should a sudden crisis hit everyone involved is vital. with no succession plan in place. It is important Sometimes it helps to have someone coordinate to consider your spouse and next of kin and the the often difficult succession planning conversaburden they would have to shoulder in the case tions that need to take place between family of a debilitating injury or sudden death. The members. Having a trusted family business quaroptions your family may have with the business terback who can take the lead and be an honest, and with the wealth you’ve accumulated are fair moderator can alleviate a lot of stress and limited if there is no plan in place. tension. A trusted lawyer, banker, or accountant When it comes to the actual succession plan, can not only provide impartial judgment but also there is a laundry list of options to consider. An suggestions for qualified experts or advisers who obvious choice is to keep the business private can help guide the business to where it needs to and in the family by passing ownership and be for successful succession to occur. leadership to the next generation. This involves More formal than just having a family business evaluating the experience, skill sets and the quarterback, an advisory board is sometimes a desire to own and operate a business to identify BY SCOTT MCRILL Impact on the deal In most cases, gifting the shares to the DAF and the subsequent transition of those shares to the buyer can take place without slowing the transaction process. Because the gift must be made before any formal, legally binding agreement to sell or merge the company, most buyers hardly notice the DAF charity’s involvement in the transaction. Professional legal/tax advice is necessary to avoid IRS challenge of these favorable tax benefits. However, thanks to the simplicity and cost-effectiveness of DAFs, owners now have a meaningful way to ensure that they will be remembered over successive generations. Laura J. Malone, CAP, CEPA, is director of gift planning at the American Endowment Foundation. Contact her at 877-599-8903 or email lauramalone@aefonline.org. who in your family might be ready to take over. Another option is to bring in employees from outside the family to fill key roles (CEO, CFO, etc.) to run the business. You could also consider selling the company to a third party. The most common option, however, is to seek out an investor. Partnering with a financial investor — whether private equity, individual, or family office — can ease the transition as you take your family business to the next level. If the decision is ever made to sell your family business outright, it is important to surround yourself with a quality team of advisers who can help you understand what your business is realistically worth. It is also important to understand what you need to sell for to achieve your life goals, not what you want to sell for due to the common emotional attachment to the business, while keeping in mind the difference between the gross sales price and net cash takeaway. That way you won’t miss out on an opportunity by holding out for a price that is unrealistic. Some owners are surprised when they realize they don’t need quite as much as they thought to achieve their goals, while others might realize they have more planning to do before they sell. The facts and circumstances all circle back to having a plan of what your life goals are and where you want the business to go. If you plan properly and surround yourself with good advisers, you will know what your business is worth all along. Scott McRill, CPA, is a Partner in Transaction Advisory Services for BDO USA. Contact him at 216-325-1700 or smcrill@bdo.com. Crain’s Cleveland Business Custom Publishing