In any business, the challenge to remain successful and survive in the competitive marketplace never stops. Add to it the complexities and emotions of passing over a 20-, 30-or 40-year-old business down the family ladder - or to a third party - and the reality of mortality of the business and the owner becomes evident.
So where does one start to find the time to think about the family succession process? If careful research and planning don't take place, the family and business will both suffer greatly. This article offers some steps that you should consider to help make your family rental business' transition to the next generation occur more smoothly.
Unfortunately, most owners avoid planning for succession as they would the plague. Owners resist succession planning to avoid facing their own mortality. Also, the family develops a "succession-secrecy conspiracy," in which nobody talks about retirement, mortality or other succession issues. This often results in frustration and conflict.
Succession planning is a process, not an event. The process can last from six to 10 years and comprises three distinct, yet intertwining plans: They are the family plan, the succession plan and the estate plan.
Begin by involving all family members in your planning process. The family rental business is like having another child in the family who needs nurturing, time and an emotional attachment.
Often in families, some of the children are more active in the business than others. Regardless, the active, moderately active and non-active family members need to feel involved in and informed about the family planning process. If not, ultimately, the family will self-destruct, and members could end up taking their issues to the courts. Recall the Schoen family who owned U-Haul and engaged in costly and, at times, vicious litigation, and the Bingham family who lost a publishing empire.
Different people see the same things differently. Find out what emotional issues need to be addressed by all stakeholders. Provide information that can help family members see the issues logically.
Use a family advisory council to create an atmosphere of real communication within the family. It is a way of organizing family meetings. Invite specialists to address specific topics such as estate planning, communication and business legal structure. Include all family members, spouses and children who are old enough to understand and participate constructively.
Set it right Most families agree that a family advisory council meeting should be held away from the office or home to avoid interruptions. Although councils usually meet two or three times per year for one to two days at a time, one owner of a family business says his entire clan goes away for a week of meetings and fun to establish traditions and memories.
Regular agenda items should include concerns, future strategies and a business report. Other agenda items can include:
* The development of a family charter to define the family's values
* The influence of family member decisions on the business
* The mission and legacy of the business
* A family participation policy and an exit plan for those who do not wish to remain active in the business
* How the family will use its assets
* The estate plan
* Financial security for the parents
* Family compensation policy and definition on who is allowed to own stock.
The succession plan A succession plan should include critical steps such as these:
* Personal career planning
* Formal education
* Working elsewhere for four to six years and then returning to the family company
* Learning the culture of the business, handling power and privilege.
To gain the skills of management and leadership skills, potential successors should be trained in these:
* Department or branch operation
* Company goal-setting
* Team-building
* Decision-making, hiring and firing
* Customer service
* Relationships with advisers and consultants
* Formal education and support groups.
One rental dealer successor described her transition this way: "At age 26, I returned home and entered the business in the computer department for standard compensation. The department manager became my mentor. Soon I mastered broader areas of responsibility and concentrated on one mentor only. By the age of 28, I was ready to manage the advertising department."
This person became general manager at age 30, learning how to make decisions, give direction, and establish relationships with employees, customers, advisers and suppliers. She and her father decided when she was ready to have all departments report to her, that she would become the company president.
"Several issues still needed to be approached and handled," the executive says. "One, the company board needed to be expanded beyond that of family. I decided to add two key non-family managers and two outsiders. Second, my parents' estate plan needed to reflect that I would receive 100 percent of the stock upon my father's 75th birthday, or immediately in the event of his death. Children not involved in the business were to receive non-business assets. Last, my parents' retirement plan would have them working part time in the company until age 70, and then full retirement was agreed upon.
"The written agreement was meant to minimize disputes that could seriously affect the success of the business and the harmony of the family, plus provide clear direction to all stakeholders as to future plans for the company."
Estate and transfer plan A good estate plan builds the foundation for a succession plan. Do not mistake having a will and a couple of trusts as a succession plan. A solid estate plan includes the following:
* A living will
* Durable power of attorney
* Buy-sell agreements
* Proper insurance protection and emergency plans
* Wealth protection for the estate to the heirs
* Special bequests.
You should take a number of steps and considerations when designing your estate plan. They include these:
* Total the value of your business assets
* Your own goals and wishes for your estate
* Each family member's expectations
* A basic knowledge of estate law
* A competent estate-planning attorney
* An appointment with legal counsel
* Sharing your plans with the family
* Updating plans every three to five years.
Your greatest challenge is not achieving success in the rental business. Your greatest challenge is perpetuating your business to the next generation. Begin by sharing your hopes and dreams with family, support each others' dreams, and then document and develop your succession strategy.
* Family work ethic within the company
* Statement of family's unconditional love for each other
* Offering support when others are in need
* Rules and guidelines for family members exiting from the firm
* Code for family communication and conduct
* Policy for giving back to the industry and community
