Business transition planning with the death of a family member

Posted by on Dec 12, 2013 in Family Business, Transition Planning | 0 comments

Business transition planning with the death of a family member

As accountants, we are often connecting with our business clients on a variety of life and family issues, and how they affect the successful running of that business.  The death of a family member affects your business even more, and the problems in dealing with the death are exacerbated. Not only must the survivors deal with their personal grief, they must also deal with its impacts on the business, including those associated with business transition planning (or ‘succession’), and at a time when their coping skills are likely to be compromised.

Dealing with the loss of a family member is never an easy ride. The pain of the loss depends on many things; the relationship with the deceased; his or her age; whether the loss was sudden or unexpected; and whether it was generationally out of time (for instance, losing a son or a daughter can be the most painful loss of all).

When the loss is sudden and unexpected the reactions to it are intensified, especially when there are no plans in place for dealing with it. The loss will impact on the family both emotionally and functionally; on the business in terms of loss of the deceased’s role in the business; and possibly on the business’s ownership.

And when it comes to business transition planning, it is more important than ever to address these issues when the time is right.

Grieving

Much has been written about the grieving process, but it doesn’t always go the way that it is supposed to. Every individual and every family is different. People grieve in different ways, and it is right that they should do so according to their own characteristics and personality; not to the expectations of others. Although the pain of losing a loved one loses its edge over time, it never completely goes away.

But life goes on, and although it is important to do what is right for the family first, we then need to deal with issues relating to the family business.

Reorganizing the business

It is important to realize that while the person who has died is irreplaceable, the role that he or she played in the family business is not. This is a key point that can be difficult to grasp fully.

After all, if those who are grieving are still going through that process after some time, you must have help and support to ensure the business carries on while you have time to focus on family and on living your own life.  A reorganization may be part of that.

Particularly when the loss is sudden and unexpected, there is often no business transition planning in place, which means the disruption to the business can be particularly severe.

However, that kind of loss is relatively uncommon; prolonged illnesses are more likely to precede death. Although such circumstances have their own set of problems, at least there is the opportunity to deal with succession, future business plans and wills.

We would highly recommend that you address issues such as having a will and preparing proper business transition planning – not with a morbid look to the future, but with a positive one.

Life cycle issues

When the deceased is elderly, then it is likely that their role in the business will have diminished somewhat and the reins of control will have been passed on to the next generation. However, this isn’t always the case; business founders tend to be reluctant to retire and often they continue to enjoy a high status whatever their age.

When the death is out of time, for instance when it involves the death of a child or early death of a spouse, then as well as the emotional pain, the generational expectations within the business are disrupted, especially when the deceased would have been the successor.  Again, business transition planning is critical to the future of the business.

Key leaders and owners

It is very important for family businesses to identify their key leaders and put in place succession plans. There should be contingency plans to deal with a situation in which a member of the board of directors or one of the key employees should die suddenly. Those who would be anticipated to change roles should be identified and their future roles designated.

Where they are business owners there also needs to be clear plans regarding the transfer of their business shares. There should be a shareholders agreement regarding this and it should be updated regularly.

Finally…

Dealing with painful issues such as those relating to death tends to be something that most of us procrastinate, but in a family business it is a nettle that we need to grasp.

Times when we have to deal with painful loss are times when we are most vulnerable; they are not the best times for dealing with issues that are crucial to the future of the family business.  Failing to have adequate plans in place in advance can only compromise its future.

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