Business Succession Planning: Engaging the Right Experts

In years, we have seen many stories in the news concerning the fight for ownership and control of businesses among the surviving family members of deceased business owners. One of many such articles is “Tycoon’s widow sues for fortune” where the widow of a Singaporean-based tycoon commenced a legal suit to claim part of a business empire with a presence in 20 countries and a staff size of 39,000 people. The conglomerate was left by her late husband to his two sons from a previous marriage. Not all disputes however are between step-parents and stepchildren. Many are between siblings sharing the same parents. And of course, that is regardless of the size of the company for any dispute.

Most wealthy people are business owners, those who are competent wealth builders. And most of the wealth of business owners is in their businesses. Needless to say, if there is a fight over the wealth of a deceased business owner, the business itself will be the primary target. As such, if you are a business owner, special consideration is required for your business when it comes to your estate planning.

In the last 12 years or so, there has been much awareness and interest among certain Malaysian business people with regard to planning who will succeed or inherit their business. A business is not only an important legacy to one’s descendants but also a testament to one’s lifetime achievements. But if you are interested in succession planning for your business, where do you start?

I am of the view that the first step is to engage the right experts to assist you. Business succession planning is similar to the financial planning process. A Business Succession Plan is like a road map guiding the business owners to get from point A to point B. Ideally, the owners should identify point Their current position as well as point B, their ultimate objective and make it known to the experts– whom we shall call “succession partners”. One should be reminded of Stephen Covey’s “Begin with the end in mind”. The role of the succession partner is to draw a map so that the business owners are able to reach point B, the end in mind.

There may be alternative routes to point B and the succession planners while presenting the various options, may recommend the one which is most suitable having regard to the client’s preferences and circumstances. However, in many cases, business owners may be unsure of what should be their ultimate objective. As such, the succession partners may have to identify point B together with the business owners as well.

Your business succession plan should address:

1. Business Issues – Will the business process be disrupted if ‘Partner A’ is no longer around? Would this result in clients leaving for competitors? And what impact could this have on the company’s profits? Is there currently any person who has the same expertise to immediately fill his role?
2. Partnership Issues – What are the arrangements when a partner retires or exits the business, whether voluntarily or due to circumstances beyond his control? Will the surviving partners buy over the outgoing partner’s stake in equal shares or on a pro-rata basis in accordance with the percentages of the existing shareholding?
3. Legal Issues – What legal arrangements must be put in place to ensure that whatever has been agreed by the partners is binding and enforceable?
4. Funding Issues – How much is required to implement the agreed course of action under the plan? And how would it be funded??

Business succession planning involves a number of disciplines. It is important that the person or team of professionals you engage have expertise in:

1. estate planning;
2. legal (especially the laws of the company and contract);
3. accounting;
4. tax consulting;
5. life insurance.

It is important that the succession partner you hire acknowledges his limitations and know when to consult other professionals on their special areas of expertise. Otherwise, you will have a situation similar to that of the well-known story where a bunch of blind men feels one part of an elephant and each stubbornly comes to his own conclusion as to what an elephant looks like. And your succession planner will be among them.

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Some planners who attended my course and readers of my book have complained about why there are no samples of Wills, buy-sell agreements, and business succession plans. No offense but I am not a big fan of Do-It-Yourself Manuals. I believe it is best to leave it to the experts. You cannot be an expert in everything and you certainly will not be an expert by simply reading a Do-It-Yourself manual. Business succession planning is sometimes complicated and requires expertise in a number of areas. Do not put your business and your family members’ interest at risk by stinging on professional fees. After all, everything comes with a price.

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Jason Koeh is the author for The Slave of Money – the template of financial freedom, President of Financial Freedom Community – a project by MQ Consultancy Sdn Bhd. Committee of Malaysian Financial Planning Council (MFPC) and Malaysia Literacy in Financial Education (Mylife). For more information, please visit www.mqbusinesswealth.com

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Reference: Can Wealth Last Three Generations? Succession Planning for Business Owners. Business insurance: Million Dollar Concept. Estate Planning MFPC.