Kin In The Game......But Are You?

"Kin in the Game" is tagline for PwC's latest Family Business Survey which covers small and mid-sized family companies in 35 countries of which Asia is represented by Japan only. http://www.pwc.com/gx/en/press-room/2010/family-business-owners-optimistic-about-growth.jhtml

The headline that will be buzzing all the advisor/PB/wealth/asset management websites in coming weeks will be that despite their worries and concerns, some 50% of families have little or no succession planning. Sounds like absolutely nothing has changed when PwC first started this survey several years ago. Other major findings include:

• 62% haven’t prepared for the possible sickness or death of a key manager or stakeholder
• 56% haven’t established any procedures for purchasing the shares of incapacitated or deceased shareholders
• 50% either lack the liquidity to buy out family members who want to dispose of their stakes in the business or haven’t considered the possibility
• 37% don’t know how much domestic capital gains tax they or their companies might be liable for, while 58% don’t know the international implication

Family businesses are probably the predominate form of commerce in Asia so it may be fair to assume that the issues/problems are even more acute in Asia.

So what's your business plan to tap this market? Does your organisation's talking head have his speech ready on how you're going to bolster your succession services and teams of qualified advisors and product specialists?

If you're one of the families looking for answers, talk to as many people in different areas (accounting/tax/banking/insurance/etc) as you can before you do anything. The problems you face can be daunting but most people will have only a partial solution for you. They pitch only what their organisation can offer which may leave you with big holes in your planning. What do I mean? Well insurance people will sell your their "succession" insurance policies which may be great at providing liquidity for a share buy-out but they can't help with you with the buyout agreement. Is even a buyout the most tax efficient manner to accomplish a change in ownership? So bring in the tax accountant/lawyer. Are you sure you want to hold the shares in your name? Maybe bring in the trust guy.... It typically takes a slew of measures to have a workable solution.

And perhaps most important of all, don't forget it needs to work before and after succession. Dumping all the company shares into a trust may seem to be a great succession plan but can you live with a trust until then or after? What are the exit strategies? Go through your "What if" scenarios as the best laid plans of mice and men....often go awry