What are the differences between planning for ownership transition and planning for management succession?

Business Leader Post, August 23, 2013

Thomas D. Davidow, Ed.D.

There are many differences, but here is a crucial one:
Almost all business owners have attorneys who will gently, or not so gently, remind them that unless they have an estate plan, the family business will have the US government as a partner. That is a pretty unpleasant thought and a strong motivation to act. Most business owners find their way to creating an estate plan that will minimize taxes. Others go further by having monies put aside, usually through a life insurance plan, to pay the government. The business owner has total authority and control over that plan. He can listen to the advice of others or not; ultimately his plan will be executed as he desires.

Management transition is much trickier. First, there is rarely an outside professional who acts as a reminder that this transition is as vital as an estate plan to the ability of the business to survive. In fact, it is more vital. You can figure your way around money/taxes, but you cannot figure your way around poor management. Poor management kills a business faster than the absence of money. Ask any entrepreneur.  Most of them started with nothing; and with hard work and creativity, they succeeded. If money had been the most important key to their success, they would not have been successful.

I would never marginalize the importance of estate planning, but unless you are willing to put time, effort and creativity into training the next generation, sell it! Save the next generation the heartache of watching the legacy slowly slip through their fingers.