Benefits of focusing on values-based business succession

On Behalf of | Feb 15, 2023 | Blog, Business Law

For Pennsylvania business owners, succession planning is critical for ensuring the continuance of their enterprises. It helps owners to transfer their business interests to the next generation with as little disruption as possible while also helping to minimize tax consequences and other issues. However, when a business owner has several adult children, figuring out how to create a succession plan with minimal family conflict can be difficult. Focusing on values-based succession might help to overcome some of the issues that could arise.

Potential problems with traditional succession planning

Traditional succession planning for businesses focuses on the identification of the management team that will succeed the current one. Succession planners also work to determine the succeeding ownership structure and work to mitigate tax consequences in a way that will minimize potential disruptions, comply with business law, and achieve the business’s goals. However, when business owners fail to incorporate planning based on values and have several adult children, traditional planning can lead to conflict between family members that could lead to the failure of the business.

Aligning succession planning with values held by the business and owners

When a business owner has several adult children, determining the person who will succeed as the owner and the composition of the successor management team can be difficult. Dividing a business into equal shares between the children can lead to issues when one child has been more intimately involved in the business than the others. This can leave the involved child to feel that the others didn’t deserve equal ownership interests without being willing to put in equal work.

By instead devising a succession plan based on the family’s and business’s values, a succession plan might be more successful. The family should have discussions about values and devise a plan in which the successor is the one who holds the most closely-aligned business values to ensure the company will continue with minimal disruptions. The owner can then opt to divide other assets between the children in a way that is fair to minimize interpersonal conflict.

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