By: Jane Scaccetti, CPA, MT, PFS
A few years ago, a long time valued client met me for lunch to discuss various business and tax issues. As we concluded lunch, this 65-year-old man asked, ‘Scaccetti, if I die, promise me you are on the first train to NYC and you will run my business until my son can decide to run it or sell it.” Trained to be a ‘trusted advisor,’ I immediately said, ‘Of course.’ But, prudence soon kicked in.
Later that night, and over the next few days, I reflected on what such a commitment would entail and whether I could do it. What if my health was poor or my family and firm commitments were overwhelming at the moment? I also realized that while I knew a lot about his business, I didn’t know enough of the specific details to do this smoothly and successfully.
Over the next few months, we created his Sudden Succession Plan. The objective of a sudden succession plan is to summarize the actions and steps to be taken upon the sudden death of the founder/principal to protect the family wealth and promote business stakeholder harmony by applying sound business principals during a period of unexpected change.
Acknowledging any sudden change would require a period of mourning and adjustment, we designed a plan based on a timeline of when his family members could and should make the decisions about his business operations. Remember, the business operations were at the core of his wealth. The continued success of the business or its ultimate sale was a vital element of the family’s wealth and security.
We started with a timeline and crucial steps at each juncture:
Immediate Action: We addressed who was notified and by whom: staff by me and his son; clients by specific members of his business; etc. The content of the message was discussed - what points should be emphasized and which communication must be by email or by phone or both.
Week One: Most communication during this time is within the team and a tight circle of key stakeholders. Our client designated roles for the existing team members that we will update annually. Again, he was clear in stating the message he wants reinforced.
Week Two: The plan addressed mostly operations and who and where are the key players relative to the business - from the landlord and various bankers to the significant clients. Our client’s son and I will make up the board of advisors, with his son serving as Chair. We have the luxury of his son being extremely bright and well educated, as well as trained in a similar business, but working for another firm in a different capacity. Develop the team factoring in training, experience, and knowledge.
Communication needed from the team included reassuring the company's clients that the founder of the business had ‘handpicked’ this team and had confidence in them; that he had planned for this and he hoped they would continue to trust him. While day-to-day assignments remained the same among the various key employees, there were a few tasks added to allow for his son and me to have the oversight role our client had when he was alive.
After 3 months: now the questions of whether this business would be sold or continue should be discussed, but not decided.
After 6 months and two business cycles: Our client’s son is to advise the new board if he wishes to continue in the business or sell it. The plan offers some bench marks and advice to consider but largely this is the decision his son will make with input. This business runs with a cash flow and management team that would allow for the owner's orderly transition. Some businesses will struggle with such an extended timeline. Adjustments must be made on the facts and circumstances of each business and family.
Nothing in the succession planning memorandum is intended to bind the Estate of the deceased founder, nor supersede or amend any provision in his final Will and Testament. It is intended the memorandum be guidance to his son regarding the business. Our client has full confidence in his son’s decisions and interpretations of his wishes. These statements are part of the final memorandum so there is no misunderstanding.
The planning memorandum went through various iterations and review including our client’s estate attorney and his son. Ultimately, both he and his son signed the document as signifying they both understood it. The memorandum is approximately four pages long and is in plain English, not 'legalese.' It is merely a summary and memorialization of his wishes and advice.
A similar plan is underway for a client with extensive investments in real estate. In this case, the individual's main fear is that his heirs will immediately sell the various holdings or engage a broker to do so, and the ultimate value of his real estate portfolio will be impeded by the quickness of a sale by individuals that are unfamiliar with the industry. We are presently working with the owner and his wife to develop the team who would step in following his passing and follow his wishes.
No one likes talking about their own death. Few children want to engage in this discussion with their parents. Yet, the voice they most likely want to hear may not be there to guide them. Having a sudden succession plan in place that can be updated as needed can help many family members sustain, stabilize and increase family wealth.
Helping business owners and their families sustain and grow their wealth is the cornerstone of our client delivery pledge at Drucker & Scaccetti. Succession planning is a key part of every discussion with family businesses, but the details and timing in a sudden succession plan are different and should be treated as such. Call on us for help in devising a plan to protect your family and your business.