Edward Rosenfeld, a family-business consultant, recommends families answer several questions on succession:

  1. Is there an objective process for the younger family member to develop? Is there a measurement for performance and accountability in place?
  2. Is there a business plan in place that operates parallel with the succession plan? Succession and business planning need to operate hand-in-glove. If you want your 30-year-old to run the business, you want to know that it is going to be a healthy business in the long-term.
  3. Pace yourself. The older, entrepreneurial owner often turns to his or her attorneys and accountants for advice, usually about gifting, tax consequences and similar topics. But if the entrepreneur hasn’t developed a succession plan or developed the management skills of the successor, or if there are two children in the business who both want leadership roles, there can be problems. If one starts giving away shares of the business prematurely, the entrepreneur may be creating long-term problems.

Published in Valuation Magazine 2012 Q1

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