An introduction to succession planning
Process addresses various issues
Succession planning is the process of transferring the ownership and management of a closely held organization and addressing the financial and estate plans of the transferring owner, says Fred Roa, president and chief executive officer of Telesis, a home care business brokerage firm based in Franklin Lakes, NJ.
Pertinent issues include:
· Management succession.
The management succession plan "designates who should manage the company. It [also] states precisely how and when transfer of power will take place. It addresses the training and development of the successor leading up to his or her appointment. It also deals with contingencies arising from the untimely death or disability of the owner," says Roa.
· Ownership transfer.
To relinquish control of a privately held company, the owner must maneuver through complicated and onerous tax and inheritance laws. The owner must also find a way to take his or her investment out of a typically - especially in the case a of private duty company - cash-poor organization, while ensuring it remains a going concern.
Ownership transition plans outline who will own the company and control the finances, while enabling the original owner to cash-out, leaving the company adequately capitalized, according to Roa.
· Financial and estate planning.
Estate plans protect and distribute personal assets, Roa says.
"[Plans answer such questions as] 'Will I have adequate resources to live on in retirement? What happens to my estate when I die? Who will be the largest beneficiary of my estate - the IRS or my heirs?'" says Robert Fowler, CMC, a management consultant based in Atlanta, who specializes in advising executives of closely held companies.
It takes about two years to develop a comprehensive succession plan, and another 10 to 20 years to fully implement it, Fowler explains.
Succession plans are working documents that should be reviewed periodically to account for changed circumstances and needs, Roa suggests. With such a long execution period, now is the best time to begin your succession plan. "The key is to do something," he adds.
(Editor's note: For a copy of Keeping the Family Jewels: Succession Planning for the Family Business Owner, please contact American Health Consultants' customer service department at (800) 688-2421. The comprehensive guide to succession planning, written by Fred Roa and published by American Health Consultants, costs $90.)
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