Often we hear business owners proudly explain how they have completed their succession plans for their companies. Likewise, convention and conference meeting planners tell us their committees have chosen an attorney, CPA or financial planner to present a program on succession strategies for private companies. But it's only a matter of time before people realize they have big "gaps" in their succession plan, because the presentation dealt only with how insurance was needed to support succession planning, how to save taxes and how to put together a death plan.

The business, legal and tax issues are similar to those in public companies, and while challenging and appearing complicated to most individuals and advisors who may only work with such issues two or three times per year, these issues can be dealt with relatively easily by a competent team of professional advisors.

Cart before the horse

The factor that complicates family business succession planning is the often emotional overlay on the entire process. Most male owners don't like, are not prepared for, or don't have the temperament for the soft issues. These issues are most likely to determine the success of the planning process.

The current failure rate of privately controlled companies is staggering. Approximately one-third survive from the first to the second generation, one-fifth to the third generation and a mere 1 percent to the fourth generation.

Emotional issues take their toll on the family business and are usually the cause for its future failure.

Take a look at some of the emotional problems family businesses face and see how they apply to your family:

• Lack of commitment to business continuity within the family
• Lack of a leader
• No standards for who can own stock in the company
• Divorce of a family member
• Alcoholism
• Unethical conduct
• Affairs with employees
• A break in trust
• Poor work performance
• Unfair compensation for family members active in the business.

The desire by many owners and advisors to avoid the emotional component often results in an upside-down planning process.

Determining goals and direction

Both generations need to think through their goals and discuss them with each other before complicated documents are created to establish the business' future.

This happened to a recent client of mine who, with the help of an attorney, estate planner, insurance agent and CPA, developed a buy-sell agreement with insurance support, updated his will and established proper trusts for his business and family. It stated that his two sons would control and manage the family business and his three daughters would share other family assets equally with all bloodline family members.

After several months had passed, he mustered the courage to share what he had done with his spouse and family members. As you may guess, the provisions of the documents were in direct opposition to most family members. Some were hurt deeply because they were not asked before making such life-altering plans. His spouse became so upset, she actually became physically ill.

In his book, The Seven Habits of Highly Effective People, Stephen Covey states, "Effective management is putting first things first. Leadership decides what 'first things' are, then management puts them first, day-by-day. Management is discipline, carrying it out."

E.M. Gray, in his essay on "The Common Denominator of Success," discovered, "The successful person has the habit of doing the things failures don't like to do." It requires the power to do something when you don't want to do it, to be a function of your values rather than a function of the impulse or desire of any given moment or taking the easy way out.

Achieving success with your planning

The most successful transitions have occurred when the spouse and the children were involved early and often in the facts surrounding the business. Family members took time to identify and develop their values system, a family mission statement and their creed or how they will operate in conjunction with the family firm and each other.

To avoid wasting time and money, deal with the entire process and begin with the emotional issues first. Enlist a family business advisor to help with the process. Once everyone's hopes and concerns are addressed and their goals and direction are revealed and taken into consideration, then you can look at the documents needed to make a successful transition between generations. Look for insurance that will minimize risk, write a will, establish trust funds, extend durable power of attorney for health care and financial responsibility, fund for your retirement and plan on the transfer of assets.

Successful business owners, pro-active in running day-to-day business activities, are often reactionary when it comes to succession planning. Those who are able to put first things first take control of the process and see it through to a successful conclusion.

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