Q&A talks business succession planning with Tegan Blackburn who specializes in the subject from her law firm in Simsbury.
Q: Your law firm does business succession planning as part of its practice. What made you focus on this area of practice? It’s more than just planning for the demise of a partner isn’t it?
A: Yes, it is. In working with many businesses as their outside counsel over the past few decades, I’ve seen too many business owners suffer personally and financially because this planning wasn’t done. There are friendly departures and there are not so friendly departures. In today’s highly competitive business environment, it helps to always be a few steps ahead.
The demise of a business relationship is just one side of the equation. The other side of the equation and really the most important one is that succession planning can be one of the single best ways to maintain the financial integrity of a company when done properly. A great deal of effort went into building a business and with most of the wealth of family-owned and private sector companies tied directly to their businesses, why not plan ahead for a successful transition and retirement. With divorce rates and business break up rates as high as they are, it has to come into consideration that someone might want a piece of the company and not under the best of circumstances. The reality in business today is that it’s a pretty litigious world and having a plan to handle some of the inevitable ups and downs makes a lot of sense. Succession planning done properly can avoid a lot of disruptions and headaches.
Q:Â From your perspective, how many businesses would you say are prepared for successions issues such as retirement, death disability or business disputes?Â
A: I‘d say far too few. I think it’s fair to say that most business owners recognize its importance, but unless there’s a real commitment to making it happen it all too easy to have it sit on the back burner for some other day. It’s critical that the business succession plan be harmonious with an owner’s personal estate plan. Most of the statistics I’ve seen on business succession and personal estate planning are a bit alarming. By far, the majority of Americans haven’t completed a succession plan or prepared a will or other critical estate planning documents. There’s a huge tendency to put these things off.Â
Q. Say a company doesn’t have a plan, what’s the best first step?
A: Getting a commitment from all the key stake holders is critical to the process. If everyone isn’t on board there’s a good chance it will languish. The process usually begins with identifying the goals they’re trying to achieve. Depending upon the age of the organization and the age of the participants, there can be a variety of different objectives.
Aside from the typical considerations death, disability, divorce or departure, which may be friendly or may not be so friendly, other factors including how to best protect the company assets from misconduct, protecting the company’s goodwill and intellectual property have to be considered. A very public business dispute and the aftermath of disgruntled partner can have a huge impact on the company’s reputation and bottom line.
Life policies often come into play to fund a potential buy-out, provide a pay-off to a divorcing spouse or to provide for beneficiaries. The age of partners, age of the organization and a whole host of other factors need to be considered. Life insurance is just one option and the agreement must be in place to outline how and when proceeds would be used. Making sure funding is adequate to accomplish the objectives is critical.
Q: You talk about one partner wanting to get out and sell to somebody new. How does business succession avoid that potential problem?
A: Handling a partner’s exit is always one of the provisions included in the plan. The plan will outline the conditions of any sale and transfer so that everyone knows ahead of time what’s required and what the process will be. An example would be the requirement of some specified number of voting interests to approve any prospective new partners. Often it’s the case, particularly in the family-owned businesses arena that successors may be identified in the process and specific qualifications are often discussed and outlined.
If this process doesn’t take place, there’s bound to be someone who has expectations about being next in line and conflict avoidance is just part of the process. The key focus of this planning process isn’t only how to get around some of the unpleasant bumps that might show up, but more importantly it’s preparing for future business continuity and wealth preservation. Business owners with the vision and commitment to completing the process will be rewarded not only creating more value in their companies, but will also have the tremendous personal satisfaction and peace of mind that comes from completing this process. There’s a lot to be said for a good night’s sleep.
