Keeping The Contracting Business In The Family

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Reprinted From: Delaware Business Review
Written By: Frank R. Sidlow, CPA
As many contractors are family owned and operated, there often comes the time that the owners think about succession. There are financial aspects as well as other aspects involved in passing the business to the next generation. A good time to begin planning this transition is about 10 years before the owner's retirement.

As the owner plans for the succession, a number of questions must be asked. Do the children involved in the business have the ability to be leaders? Are the children involved in the business eager to take over and have there been conflicts about who does what? How can you insure that the company stays in the family?

These questions must be answered as planning is done for the future. These issues must be discussed with the heirs so the owner's wishes and concerns are known. Perhaps some of the issues can be worked out and agreed upon as the succession plan develops. Or the family may feel it's best to sell the business when the owners retire. Open and honest communication is important in this process.

If the goal is to keep the family in the business it is best for the owner to select a successor while the owner is still active in the business. The successor should begin taking over the reins while the owner is still available to guide him/her. If key non-family employees are instrumental in perpetuating the business, make sure they stay with the company. Entice them with incentive programs. Offering performance bonuses or phantom stock may be viable options.

If children don't have leadership qualities, is it because of inexperience? If not, the owner needs to determine who will best lead the company whether that be a family member or key employee.

Conflicts among children wishing to take over the business must be discussed. Regular family meetings may be the vehicle to use to help this discussion and come to some resolutions.

The owner may not be able to insure the company stays within the family. But with careful planning and foresight, this goal may become a reality if transition issues are discussed and resolved at the onset.

One of the key agreements that need to be in place in any successful succession plan is a "Buy/Sell" agreement. The "Buy/Sell" agreement should contain appropriate provisions that protect not only the individuals involved in the agreement, but also the business. The agreement needs to be well thought out and provide for the wishes of the parties involved to be effective.