As Seen in Multi-Unit Franchisee Report – Suspended In A State Of Succession Planning Limbo
The majority of owner’s we interact with are in what Jeff Bannon refers to in this article as “Succession Limbo.”
The most common reasons we see owner’s “stuck” is either fear of making a poor decision or lack of clarity on planning options available to them.
To provide a way out of succession limbo for owner’s, Jeff Bannon offers 3 options to consider:
Plan for a family member successor with an escape hatch:
This approach supports the situation when next gen is committed to the business, but they don’t appear ready yet to take it over; and the owner either wants to exit soon.
In this environment, special attention is required to the retention of key managers, strategic planning, successor development, and business structuring. Every successor needs a strong team, especially when the unexpected happens. To avoid a distressed sale and keep the option available for the family, we recommend the use of a Golden Handcuff structure to ensure the key players are motivated to keep the business profitable while picking up extra slack.
Plan for a sale with the opportunity for family members to earn their way in:
This approach supports the situation where next gen family has the talent to continue to the business but has not made career commitment to it.
Addressing this issue requires careful business and estate planning documentation to create the necessary flexibility. The assumption is that the owner will position the business for a sale, minimally creating a list of buyers, key contacts, and an expected value to assist the executor/trustee in consummating the sale. The challenging component is creating the opportunity for a family member to mature and/or change their minds and make a commitment to continue the business on through another generation.
Plan for a sale to a key manager with a way out:
This approach supports the situation when a key manager has proven their ability to own the business and wants a chance, but there is a concern if he/she can afford it.
We find this planning environment to be popular as it is designed to allow the business owner to work as long as they like. The amortization of the sale can be tailored to meet the exit strategy of the owner. Since the process of buying will be over time, unlike a sale to a third party, the owner can determine when and how control (via voting shares or majority interest) is realized by the key manager and therefore when retirement starts.