By ELIZABETH CHRISTIAN
More than half of the businesses that are members in the Austin Chamber of Commerce employ fewer than 50 people and are considered "small" businesses by the federal government. Many Covenant members run businesses in this category. However, as the owner of a public relations agency with 18 employees, I can tell you that my business does not feel small at all. It is of enormous importance to my family and me, and thus to my estate.
As a baby boomer, the reality of passing years can't be denied. Although I fully intend to work at least 10 more years, I consider it my responsibility to think through what happens to my firm after I'm out of the picture.
Thus, I've made a commitment to tackle the often-tough job of succession planning head on. My friend and experienced tax and estate attorney, Frank Leffingwell of Round Rock, has been a key advisor in this exercise. With Frank's guidance, I am working through a number of scenarios with a big (if somewhat morbid) goal in mind: If something happens to me – or if I simply decide it's time to retire – I want to find a way to protect my employees and to ensure that Elizabeth Christian Public Relations can continue to thrive well into the future.
It turns out that the vast majority of founder-owned businesses, sometimes called mom-and-pop operations, simply have to close the door when the original owners retire or die. Employees lose their jobs, and the estates of the owners never benefit from decades of hard work. With Frank's help, I'm working to make sure that does not happen.
I hope my experience will be of interest to those of you at Covenant who may be in the same situation.
Here are my biggest takeaways from the succession planning process I've been going through:
Start the process as early in the life of your business as humanly possible.
Unless you are in a tech startup with an "exit strategy" that involves building the business and then selling it in its early years, you are probably creating a business that you intend to maintain for the rest of your working life.
As you work on staffing, hire with eye to finding a person or persons who can eventually take over the business when you're ready to retire. This means hiring folks 15-20 years younger than you are and finding them early enough in their careers that they can grow with you and be poised to assume a leadership role.
This is harder than it sounds. Most of us are more comfortable with people of our own generation. But if everyone in your management structure is your same age, where does that leave you when retirement beckons?
Begin with the end in mind.
Leffingwell recommends beginning with the end in mind. Decide what results are important to you and what you want to happen with your business. As the business owner, you don’t need to know how to reach a particular succession goal, but you do need to know what goal it is that you want to reach. No advisor can tell you what you want—only you know that.
Create a structure that separates the business from your overall estate.
Frank Leffingwell suggests that you might consider creating a separate trust for your business.
"A business is usually fairly illiquid but nonetheless valuable," Leffingwell says. "Putting it into a silo of its own allows you to make good succession-oriented decisions that build value for your children but that keep the business out of the morass of probate."
Your children may very well NOT be the perfect "next" owners of the business.
If your child or children have been working with you for years, they very well may be the logical successors to you. However, most of us are not in this situation, and most of our kids have careers different than the one we've built with our companies.
"Talk to your family early and often about your plans," Leffingwell says. "They often don't really hear or process the first conversation because they don't want to think about you being gone. I don't usually recommend giving your children copies of your will because wills change over the years. But they sure need to know where your estate documents are, including the business-related ones, and they need the comfort of having discussed these important decisions with you."
Make sure your will and your business documents are totally coordinated.
These important documents do not exist in separate worlds. Your will needs to contemplate everything you plan to do with your business, and your business structure must be compatible with your estate-planning documents.
Do not rush this process. It can take a year to fine-tune your plans.
Speaking from experience, I needed to see things in black and white before they really became concrete for me. None of this can or should be done quickly, and it all needs to be done with a strong advisor on your team.
For more information about Covenant Presbyterian Foundation, please visit covenant.org/foundation/ or contact Duane Dube or any Trustee: Elizabeth Christian, Everard Davenport, Larry Faulkner, Megan Poore, Helene Maham, Kristin Schell and Scott Ream.
Covenant Presbyterian Foundation supports Covenant Presbyterian Church by assisting donors to be Faithful to Generations, during and beyond their own lives, by receiving and growing their gifts, and using them to help fulfill the donors’ glorification of God.
One generation will commend your works to another…Psalm 145:4