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Five Common Succession Planning Problems

Learn about the five common succession planning problems that include inadequate communication, an over-promising parent, unprepared heirs, delayed planning, and lack of liquidity.

1. Inadequate Communication

Members of the senior generation and their children often do not discuss a plan regarding who gets what assets, duties, and responsibilities, or what will happen when the business owner retires, dies, or leaves the company due to disability.

2. An Over-promising Parent

The parent promises all things to all children but doesn’t put a plan in place to ensure promises are kept. This results in disappointment, anger, and confusion when the owner retires or dies. This uncertainty often seriously damages or destroys a business.

3. Unprepared Heirs

Too much planning focuses on the senior generation “giving” issues and techniques, but not enough on the next generations “receiving” the business. Parents risk leaving their heirs unprepared and open to family conflict when they don’t discuss the nature of their assets or other business-related matters, or they establish trusts without preparing heirs with adequate information or understanding of their responsibilities.

4. Delayed Planning

There are numerous effective ways to help minimize tax and succession problems. Senior generation members often delay making decisions, making it difficult, if not impossible, to implement effective strategies when needed. Early planning is essential.

5. Lack of Liquidity

Failure to plan ahead can cause havoc and hardship for families who want to buy out the business when the owner is alive, or for survivors who may be faced with debts, expenses and taxes, and no way to meet their obligations. A family without sufficient liquidity to pay such obligations may have few options for succession, and may be forced to sell the business.

Aug 22, 2012 | Articles

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