Those who own a business — especially a family business — need to, at some point, have a conversation about succession planning.
Succession planning is the process of establishing a framework for what will happen to a company should its business owner(s) retire, become incapacitated or pass away. It is setting up things to run if that owner is no longer a part of the organization.
A 2013 Survey of Family Businesses by the Connecticut Business & Industry Association (CBIA), showed that 40 percent of family businesses in the state lacked a succession plan, though 58 percent of those responding said they intended to pass their business along to family. Only seven percent said they felt properly prepared for such a transition.
Some of the potential pitfalls of arranging for business succession without expert help could include: a failure to document terms in writing; difficulty deciding family shares (equal across the board isn’t always best); not adequately preparing a business transfer for audit; rushing the succession process; or not taking advantage of the proper gifting opportunities.
A good time to begin business succession conversations? Now, according to Webster Bank Regional President Timothy Bergstrom.
“As we’re accustomed to working closely with our business clients, we suggest that they think of this process earlier rather than later,” he said, and take a comprehensive look at the situation with a financial advisor, banker, attorney and accountant.
“It’s never too early.”
Each Case Unique
The process of transferring company succession differs from other business-banking processes, says Adam McLaughlin, Webster Bank, senior vice president, commercial banking. It’s important that an experienced team is there to review the owner or owners’ plans, ensure all will go smoothly and reduce risk wherever possible.
With a family business, different dynamics may be involved as the company is passed on or if a change is made in who takes on
operational responsibilities. Circumstances can differ greatly from industry to industry, family to family, McLaughlin noted.
He said that there is never one universal correct answer in handling business succession, which is why it’s important to review all details at play.
Webster Bank is accustomed to dealing with businesses in the medical, manufacturing, legal, accounting, professional services and service industries, to name just a few of the categories it serves.
“There may be factors that are specific to the business,” McLaughlin said, “things change, markets change, it could seem as if the company is headed down one path but then it makes sense to speed up the timeframe or sell to an outside party. It depends on individual family dynamics and what the market will dictate. To the extent that the bank can play a role in the process, we step in and support,” he said.
There may be tax consequences, for example, he said, that can differ if a succession is handled one way as opposed to another.
“We need to figure out what comes next for owners, how it fits with emotions that may be at play. It needs to be well executed as it can impact everything from dealing with taxes, employees, how owners are looking to derive income and more,” said Bergstrom.
Reliable, In Your Corner
Webster Bank holds value for its business clients as a gateway to resources they can trust in these matters and more.
The bank has ongoing, relied-upon community partnerships with both law and accounting firms. The bank can help link business owners with these specialists in their fields to weigh in on business-succession situations, ensuring all angles are considered, whether it’s a specific area of bank expertise or not.
“Other experts can come in and try to apply good business sense objectively,” said McLaughlin, with a business owner getting a complete, multifaceted perspective of succession and what it can mean.
“Having all advisors weigh in is key,” said Bergstrom.
“We may not be able to identify a potential buyer — if that is what the business needs, for example — but we might be able to set up introductions with companies ready to deploy capital and others interested in opportunities like these,” said McLaughlin, calling Webster Bank a one-stop shop for owners who could feel intimidated by the succession process and tempted to delay it further.
Webster Bank’s leadership and staff work to support companies through their complete timeline — and in cases where it’s a family business that has been in Connecticut for generations — it’s a special privilege. Succession-planning support is not as much a separate service as it is part of a more organic conversation stemming from solid client relationships, said Bergstrom and McLaughlin.
“It’s one of the topics we discuss with all current and prospective clients,” said Bergstrom. “We tend to take a holistic approach to things like cash flow, how they manage/disperse cash and how various kind of transitions may affect that.”
“We want to be there throughout the potential lifecycle of the business,” McLaughlin said. “As they grow and transition, we want to earn their trust with our ethical behavior and strive for excellence right beside them.”
