Financial Planning in the Family Business: When Crisis Strikes Are You Ready?

In the aftermath of a personal tragedy, would your family business have their financial planning ready for an orderly transition?

“We were forced to prepare our family business succession and estate planning hastily, not knowing whether our father would ever return to work”

Our family was anxiously waiting for my father to arrive at the office for an important bank meeting presentation. It wasn’t unusual for him to be running late, but we were already nervous about the presentation, and his being late only added to our stress.
After finally deciding to start the meeting without him, we were only a few minutes into the presentation when we were interrupted and informed that our father had been involved in an auto accident. We were told that they were taking him to the hospital. Not knowing the seriousness of his injuries, our initial reaction was to continue on with the meeting, not wanting a personal matter to interfere with the business. This may sound insensitive, but honestly, this was our first reaction. As a family business member you are brought up to keep the family issues from creeping into the business. After a few minutes, we came to our senses, stopped the meeting, and rushed to the hospital to see how serious our father’s injuries were.
Upon arriving we learned he was in critical condition in the emergency ward of the hospital. He had experienced serious head injuries and it was touch-and-go for several days on whether he would survive the accident injuries. He did recover, but had a long road ahead of rehabilitation, and it was uncertain whether he would ever return to work. We were actually fortunate that it wasn’t more tragic, because my parents usually drive in to work together, and this day they had chosen to drive in separately. (A True Story)
We learned from this crisis, the importance of proper succession and estate planning, the hard way. We had started initial discussions about each of these plans, but had been distracted by the ongoing business and had failed to complete the process before the incident.
As a family, it can be difficult to get the succession and estate planning process started. Merely mentioning the plans, can often stir up mixed emotions and sensitive issues including, family conflict, future leadership, sibling rivalry, and retirement planning.
Rather than think of it as a monumental process, it often helps to break estate planning down into smaller more manageable pieces.
1. Begin with a simple “what if” crisis plan – a top-level action plan in the event of a crisis (usually seeing how unprepared we are helps to frame the urgency of the process)
2. Hold regular family meetings to discuss the strategic plan of the business
(Including gaining consensus on the strategic direction of the business)
3. Prepare a succession plan
(Including decision on the leadership roles and future involvement of family members)
4. Discuss the exit strategy of the senior generation
(Including a discussion on the business and personal wealth of the senior generation)
5. Prepare an estate plan
6. Working with outside facilitators and business advisors can help the process move forward by providing a sense of discipline and often prevent sensitive issues from becoming conflicts.
Most importantly is to just start the financial planning process moving forward. Having effective succession and estate plans in place will provide you with a higher sense of comfort and security. That way you will always be prepared “to expect the unexpected”.
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