November 2021 Currents

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charitable planning HAHN, LOESER & PARKS LLP

The Family Business: Keys to Successful Succession By Dana Marie DeCapite Succession planning is undoubtedly the most overlooked topic within a family business—however, this is rarely due to oversight by the business owner. Rather, the sometimes emotional and cumbersome nature of the process causes succession planning to be tabled or delayed. It is much more palatable for business owners to focus on business growth than it is to face mortality and intricate family relationships. However, the financial success of the business may be quickly overshadowed if the vitality of the business is threatened by outdated or nonexistent planning. The following items should be considered

in designing a family business succession plan: • Talent Strategy. The talents and strengths of current ownership will undoubtedly differ from that of next-generation. An integral part of the business succession plan is to evaluate the strengths and weaknesses of next-generation ownership to determine future roles within the family business. • Exit Strategy. The business owner should determine an exit plan based on personal and financial goals. The business succession plan should also address the scenario where the exit plan is derailed due to untimely death or disability. • Transition Strategy. The business owner should determine if the business will be sold to next-generation, gifted to next-generation or some combination thereof. This process should include desired timing, appropriate

valuation considerations and financing options. • Control Strategy. As part of the transition, the business owner should determine the desired control structure. Ownership and control are not always synonymous in a family business succession plan. Many plans are designed so that a certain child or family member will derive financial benefit from the business through passive ownership but will not have control in business operations. In situations where the family business is the largest asset, it is important to explore this notion. • Tax Strategy. The overall business ownership, structure, control and type of entity should be reviewed from an estate, gift and income tax perspective. This prepares current owners for a financially secure retirement while simultaneously positioning next-gen-

eration owners to purchase, inherit or receive the business in a tax-efficient manner. • Family Strategy. Family harmony and a successful business succession plan need not be mutually exclusive. Communication and transparency are key for preserving complex family relationships—and advisors should be able to assist in navigating the difficult conversations. Business succession planning is a multifaceted process, rather than a one-time project, and should be regularly evaluated to adapt to the ever-changing family business structure. Dana Marie DeCapite, Esq. is a partner at the law firm of Hahn, Loeser & Parks LLP. Contact her at or (216) 274-2465.

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