Avoiding conflict via redemption and exit plan (First of two parts)-A A +A
Tuesday, September 24, 2013
ONE of the key pieces to put in place for effective sibling partnership is a redemption and exit plan–a system that permits either one of the siblings to exit and sell shares (including the pricing and terms).
It should be an arrangement which allows siblings to exit emotionally (without guilt, judgment, feelings of betrayal and disloyalty, being ostracized, defeat, rejection) and financially (enabling financial mechanisms are in place, internal markets, exit plan) when they no longer want to be part of (or be involved in) the family business.
Some family businesses deliberately make exit impossible. If so, the arrangement should be legally binding and all should pledge to uphold it for the reason it was chosen.
In effect, the Redemption and Exit Plan for Siblings is a part of the succession planning process which should be both an orderly and personal process wherein the ownership and management of a business are transferred to the next generation in a tax–effective manner.
There is no canned “one size fits all” plan.
In addition, every plan must consider the very unique individual circumstances of its situation.
A successful exit and succession plan should be one that can be easily updated to the current state of affairs.
Business Exit Planning is a modern approach to Business Succession Planning.
It is a systematic process resulting in an owner’s transition out of the business.
It helps clarify the owner’s objectives and determine what he/she wants, or needs, to whom the business will be sold or transferred, and when the owner will exit the business.
The exit plan prioritizes owner objectives which can compete and conflict with one another while allowing him control over the process.
The four-step process is as follows: (1) Identifies and organizes owner-driven exit planning issues; (2) Creates a formal written plan of recommended actions; (3) Acknowledges and requires a multi-disciplinary approach to exit planning and implementation of recommendations; and (4) Incorporates implementation and accountability timeline.
After coming up with an agreed-upon amount for the transfer, or purchase of ownership, many business owners set up a buy-sell agreement.
With this type of agreement, the exact terms of the sale will be discussed and put in writing.
The terms could include an event that triggers the sale of the business ownership and the amount to be paid for the ownership share. (To be continued)
Published in the Sun.Star Cagayan de Oro newspaper on September 24, 2013.