Let’s talk about money: Creating a succession plan for your business

Let’s talk about money: Creating a succession plan for your business

Why families should discuss business succession plans with the next generation. Here’s how to start the conversation.

You may dream about your children leading your company one day. But have you discussed a succession plan to make that happen? A lack of communication could prevent that dream from coming true — especially if your children have other plans, says Greg Miller, planning and life events specialist with Wells Fargo Advisors.

“That’s why it’s important to have conversations about your business with your children now,” he says. “Those conversations can confirm that the children are interested in running the family business one day and set the stage for a smoother transition.”

Here, Miller shares the important topics to consider when discussing the family business — and your succession plan — with your adult children.

Start the conversation with the company’s history and values

Many parents are surprised by how little their adult children know about the business they run, about its history and role in the community, Miller says.

Miller suggests talking to your children about why you or another family member founded the company, and the hard work and ups and downs of the early years. You can also share stories about the company’s challenges and successes. Those stories could help the business mean more to your children or grandchildren, as you connect it to their family history.

Sharing how the community-at-large has benefited from the business over the years could also help children better see its value as well.

“Talk to them about what the business means to you and how it makes a difference,” Miller says.

Offer ideas to involve your children if they express interest

When your children become young adults, have one-on-one conversations with them if they show interest in the business, and then check in periodically to see if those feelings have changed.

Eventually, sit down and have a more in-depth discussion about their interest as you begin to formulate your succession plan, including the details and reasoning behind it.

“Transparency is important,” Miller says. “Explain why you made those choices or decisions. You don’t want those things sprung on them in the event of a death or another unexpected circumstance.”

Be open to feedback, and keep in mind that the best succession plans are flexible and allow for changes as time goes by.

“You cannot assume that your children’s interests are going to be the same as yours,” Miller says. “If you have multiple children, not every family member has the same skills, abilities, and interests, so your succession plan should take that into account.”

Think about creating a family council

Consider inviting adult family members to serve on a family council or family board that meets on a regular basis to discuss the business. During the meetings, share the company’s financial and operational performance, short-term challenges, and long-term goals. The meetings could help establish who’s an obvious choice to lead the business, while letting other family members still have a say in the business.

Although business owners could be reluctant to divulge too much, sharing information could also help your children feel a sense of ownership, Miller says. It also gives them an opportunity to ask questions, offer feedback, and share concerns.

Consider a family meeting with an outside specialist

If you’re concerned about hurt feelings or complicated family dynamics, Miller recommends asking an advisor to attend a family meeting to discuss your succession plan.

“The advisor can be a neutral party who can bring up the issue with the family and encourage open lines of conversation,” Miller says.

In one meeting Miller participated in, for example, a daughter-in-law was surprised to learn that the business owner actually wanted her to have a place in the company.

Not all meetings go so well, Miller acknowledges, but being open about your plan could help foster trust among all family members, even those who don’t want a role in the business.

“These conversations can clear up confusion and smooth the transition,” Miller says, “so that your business can thrive for generations to come.”