Health Check for the Family Business

The following is a quick “health check” for the family business. If you answer “no” to any of these questions, we suggest you contact a member of GPM’s Family Business Advisory team to assist you.

Succession Issues

  • Is there a buy-sell agreement?
  • Has the buy-sell agreement, especially the method to value ownership interests, been reviewed in the last five years?
  • Is there a funding mechanism to ensure the buyout can be made?
  • Do all the business owners have estate plans?
  • Have those plans been reviewed in the last five years?
  • Is there a plan to minimize the estate tax liability upon owner’s death?
  • Is there a succession plan for transition of the business upon the owners’ retirements or deaths?
  • Do the estate plans, buy-sell agreements, and succession plans work together to achieve the owners’ goals?
  • Has anyone helped the owners identify their goals?
  • Have mechanisms to get cash flow to the owners upon retirement been considered?
  • Do the owners have a vision for their post-retirement lives?
  • If the transition will be to children, have the needs and roles of the active versus inactive children been identified and provided for?
  • Have the needs and roles of non-family-member management been considered?
  • Does everyone involved in the business know what will happen and what to do upon an owner’s unexpected death or disability?

Corporate Issues

  • Has the company had recent meetings of its board and owners?
  • Are minutes up-to-date for meetings of owners and directors?
  • Does the company maintain an up-to-date capitalization summary?
  • Does the company maintain a stock ledger or its equivalent?
  • Have officers and directors been advised of their fiduciary duties to the company and its owners?
  • Does the company have any outside directors?
  • Does the board understand its responsibilities and appropriate roles, particularly to the owners and to the managers?
  • Is there an up-to-date strategic plan in place for the business?
  • Has anyone helped the owners assess the value of the business?
  • Do the owners agree on the value of the business?
  • Has anyone assessed the advantages and disadvantages of selling the business versus keeping it?
  • When the company issues ownership interests, does it make sure that it complies with the applicable federal and state securities laws?

Employment Issues

  • If owners work in the business, are they aware that their employment is “at will”?
  • Does the company have noncompete and nondisclosure agreements with key employees?
  • Has the need for key person insurance been discussed?
  • Do key employees know what their roles will be upon an owner’s death, disability, or retirement?
  • Are the proper incentives in place to encourage employees to contribute to the success of the business?
  • Do non-family-member employees feel secure in the knowledge they are important contributing members of the organization?
  • If family members work in the business, are their roles, responsibilities, and reporting relationships clearly defined?
  • Is there a family employment policy?
  • Is it enforced?
  • Do family-member owners who are not employed in the business know how and under what circumstances they can draw value out of the business?
  • Are non-active family member owners clear about their expectations of the active family member owners?

This list is a sample of the kinds of questions we ask to determine the health of the family business. Questions may also be asked in the areas of real estate, employee benefits, financing, and litigation prevention, to name a few.

Copyright 2014 Gray Plant Mooty. You may not copy or distribute any part of these materials without Gray Plant Mooty’s permission, except as permitted by copyright law. Please direct any requests for permission to copy or distribute these materials to Sally Stolen Grossman or Mike Sullivan Jr. at Gray Plant Mooty.

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