In previous articles, we explored some of the issues that business owners must consider when building a cohesive succession plan. While succession planning is important, many business owners struggle with reconciling the business' needs with the owner's personal and family needs and goals.

It is often the case that the goals an owner expresses for his/her personal life clash with the goals expressed for the company (whether written or not). For example, there is often conflict between the company's need for additional capital, and the owner's desire for financial security. Often, the financial resources are not available to achieve all of these goals at the same time. With short-term issues taking up so much time, it can be easy to defer succession issues.

These realities support the need for families to take an integrated approach to their life and financial planning via the creation and alignment of three important plans.

First generation business owners require a business plan for the company, the owner's personal financial plan and, assuming the goal is to see the company ownership extend beyond the founder or provide liquidity for the family, the succession plan.

Typically the process starts with the assumption of an existing business plan. If a company plan is not in place then it will be important to ensure that a formal business strategy is developed and articulated.

1) The Company Plan

The major difference between planning for a closely held business vs. for a business with many shareholders is that closely held businesses tend to account for a disproportionately high percentage of the shareholders' wealth. As a result, the company plan and the metrics designed to measure the success of the company must be viewed in the context of the requirements set out by the owner and family plans.

This is important because the issues and assumptions articulated in the plan are used to define the priorities of the business. With the business' strategy clearly defined, we can evaluate how well the business will support the owner's plan now and over the projected time frame.

2) The Owner's Plan

This is a personal financial plan developed for the owner and his/her immediate family. In addition to the typical areas that form a comprehensive personal financial plan, other areas for consideration in the owner plan, include the owner's role, now and in the future and the role of the company or business as seen by the owner.

Specific questions to be addressed include:

• Does the business plan meet the needs of the personal financial plan?

• How do the personal and family goals translate into business goals?

• If the business cannot meet the needs, what changes must be implemented?

• What are the milestones that indicate that the plan is on schedule or behind schedule?

By the time the owner has addressed his or her personal goals, roles for the future and the social and financial dimensions of their life and wealth, the exit or succession goal has also been established.

3) The Succession Plan

As we noted in previous articles, an effective succession plan sets out the blueprint for the transfer of ownership. It examines the impact of the plan on the owner(s), the family and the business with a view toward facilitating a smooth and efficient transfer of ownership, leadership and wealth. It illustrates the net effect, incorporating tax and other considerations into the model.

Once ownership extends to additional family members and non-family members or partners, a Family Plan is recommended:

4) The Family Plan

The family plan is a continuing process of review and communication, carried out through regular meetings. Although the mission of the business, leadership and governance issues are some of the standard areas the family plan might address, operational issues are not the only issues that this planning process might tackle. A successful planning process is also about understanding the perspectives of individual family members, the development and implementation of shared family goals and the development of individual family members. One important benefit of the family plan is that it allows individual family members to move forward in their own careers and lives as they see fit. The plan allows them to view where they fit in, thus providing context against which they can create a life and financial plan of their own.

With careful, proactive planning that involves discussion and trade-offs a course of action can be mapped. This process will make balancing the needs of the family with the needs of the business much easier.

This article is part of a series reflecting on some of the 'best practice' issues and considerations relevant to owners of privately held companies.

Asgill Post provides Business Intermediary Services: Business Valuation and M&A Assistance. For comments or queries, contact Kumi Bradshaw MBA, CBA, BVAL via email at kumi@asgillpost.com or phone at 295-3301.

Patterson Partners Ltd. provides Bermuda/US cross-border tax, estate and investment planning services. For more information, visit www.patterson-partners.com or contact Jennifer A Patterson, CFP®(US), CIMA®, TEP via email at info@patterson-partners.com or phone 296-3528.