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Factors to Consider When Leaving a Business to an Heir
Published on Dec 3, 2012
Read our article, 'Factors to Consider When Leaving a Business to an Heir' at 'Time to Start Up,' the small business blog by BizFilings.
By Holt Hackney
“When it comes to the succession plans of a family business, there are many things to ponder when selecting an heir,” said Brad Wiewel of The Wiewel Law Firm in Austin, Texas. “Important attributes like responsibility, work ethic, and leadership are taken into consideration when deciding who to choose for the business. Deciding on a successor for your business can take patience, time and understanding. “
But Wiewel was also quick to point out that such decisions are a two-way street. Such planning isn’t just about the entrepreneur’s decision. It is also about the hopes and dreams of your family members and heirs involved. More than one small business owner, who is ready for retirement has heard: “Dad, this just isn’t right for me.”
This makes it all the more important to plan ahead. As uncomfortable as it may be, the entrepreneur is wise to approach the heir apparent to determine the interest level. Set aside the worries that you might be rejected or that the feelings of other potential heirs may be hurt. There is a logical flow to the pecking order, be it a history of responsibility or the mere fact that the oldest should be first in line. The small business owner should address the lingering issues now or risk seeing a life’s work fall apart.
The risk might be something akin to what has happened in the sports world in early November, where the Los Angeles Lakers, under the direction of the son, Jim Buss, of former owner Jerry Buss, made by most accounts a critical mistake in the hiring of their coach.
To refresh, the Lakers, i.e. Jim Buss, abruptly fired their current coach and bypassed Hall of Fame Coach Phil Jackson (who has won 11 NBA championships) for Mike D’Antoni (who has never coached in an NBA Finals game) as their new coach.
Infighting and Mismanagement Can Ruin a Small Business
The LA Times Magazine anticipated all this in an article three and half years ago: “Some fans are understandably nervous at the prospect of a generational transfer: The pro-sports landscape is full of stories of rich men leaving teams to their kids, only to watch infighting and mismanagement ruin the franchise.”
Jim Buss told the magazine that his dad left a near-perfect ownership blueprint. "I'm totally comfortable with them taking over,” Jerry Buss said at the time. “Jim is set to take over the basketball operations any day now, and in many ways, he already has.”
Could this whole scenario have been prevented? Probably not. And to be fair, there are many examples where the transfer of ownership has been flawless.
The moral isn’t to bypass the heirs and sell the company as much as it is to do your homework early and ask the right questions of the heirs before that day of reckoning.