DALLAS, Texas - In recent years the large players in the trucking community have been purchasing fleets at an increasing rate. Through acquisitions, the Mullen Group and TransForce have become two of ...
DALLAS, Texas – In recent years the large players in the trucking community have been purchasing fleets at an increasing rate. Through acquisitions, the Mullen Group and TransForce have become two of the largest for-hire fleets in Canada.
But for every fleet owner who cashes in their chips to join the portfolio of a larger corporation, there are a number of family-owned operations eager to keep their business lineage alive. Passing a business on to the next generation is becoming less common, but is possible with the right plan in place.
Terry and Leon Resnick, partners with Resnick Associates, returned to the American Trucking Associations management conference and exhibition in Dallas on Oct. 31 to deliver a seminar on succession planning.
The first bit of advice: you needed to start planning yesterday.
Businesses fail for a number of different reasons. The leading causes are mismanagement, poor decisions and inefficient estate planning – and according to Terry, inefficient estate planning is the number one cause.
The main goal with a successful succession plan is to have all your ducks in a row, so there will be no squabbling when you’re gone.
“Are you putting your family in the position of eventually not speaking to one another?” asked Terry. “Mark Twain once said, you never know someone until you have to share an inheritance with them.”
With two out of every three businesses unable to make it to the second generation and only 15% making it to the third generation, Terry noted that efficient estate planning is the best way to be on the positive side of those statistics.
One of the leading causes of inefficient estate planning is not having a succession plan in place at all.
“The response is, it will take care of itself. But it doesn’t take care of itself, you have to have a proactive plan,” said Terry.
Other leading causes of inefficient succession are the inability to retain key executives and personnel, the business going to an inactive spouse or family member, and all siblings, whether active or not, having shares in the company.
“If you put inactive shareholders in your business you’re setting yourself up for problems,” added Terry. “You have to separate the family structure from the business structure. You have to delegate titles based on ability, not by age.”
For a succession plan to be successful, it also needs to be complimentary with an estate plan.
“If your estate and succession plans are going in opposite directions, you will have a problem,” noted Terry. “Many trucking companies we talk to are doing either/or.”
One of the initial common goals of a successful plan will be the certainty of where distributions will go.
“You should never have an advisor say you need to do this or you need to do that, you need to understand what it is you want to achieve,” said Terry.
Other goals that need to be addressed to ensure a successful succession plan and to keep your business on the right path are to reduce estate taxes, provide liquidity, ensure the family is treated fairly, and make sure minors or special needs children are taken care of.
Some common mistakes the Resnicks have encountered, which have ultimately led to the demise of a company after its leader has left are a failure to utilize tax breaks, leaving everything to a spouse, improper use of joint property, reliance on post-mortem planning, improperly arranged life insurance, and lack of a master game plan.
Perhaps the number one mistake however is not recognizing the estate’s actual size.
“When you think about the size of your company, it’s very subjective,” explained Terry. “I wouldn’t start moving assets around until you have an evaluation done. You don’t need a full-blown evaluation every year, but you should do an update every year; or every other year at worst. It’s critical to work with someone with experience.”
One of the key ways to help a succession plan come to fruition is communication.
“All parents should explain their estate plans to their children so they have an idea,” added Terry. “You don’t have to give them all the details but they should have an understanding.”
Perhaps just as important as making sure your business will succeed after it’s no longer in your hands, is the ability to benefit from the fruits of your labour.
“You need to enjoy your assets while you’re alive because you can’t pass it all on,” noted Terry.