Business Succession Planning
One of the toughest and most critical challenges for a family business is succession planning. It can be complicated because of the relationships and emotions involved. Yet succession planning can be vital in ensuring a multi-generational business that includes the founder’s mission and values long after they are gone. Whether your family business is large or small, proper planning is crucial in avoiding family feuding and positioning the business for continued success and growth.
With only half of family businesses having succession planning and only a third surviving the death of the business owner, starting succession planning should be done sooner rather than later.
A business succession plan should address three primary issues:
- Who should manage the business?
- Who should own the business?
- What are the tax implications?
- Family continuing to own and manage their business
- Family ownership with outside management
- Selling the business to employees
- Selling the business to third party
- Liquidating the business
Each of these options present distinct advantages and disadvantages
Here are some things to consider with the succession planning process:
- Start business succession planning early.
- Five years in advance is good. Ten years in advance is better
- Consider building an exit strategy right into your business plan
The longer you spend on your succession plan, the smoother the transition process is likely to be
- Involve your family in the business succession planning discussions.
- Having an open dialogue for family members is the best way to begin the process of a successful succession plan.
- Pay close attention to the personal feelings, ambitions and goals of everyone involved.
- This will help you gain perspective and make rational decisions during what can be an emotional time.
- Carefully identify future management.
- You may think your oldest child is the obvious choice to run the business, but do they have business skills or even the interest to do it?
- There may be another family member who is more capable.
- Have you looked to a third party?
- Perhaps there are no family members capable of or interested in continuing the business and that it would be best to sell it.
- Consider bringing in outside advisors that can provide an objective view of the potential leadership of the business
- Examine the strengths, weaknesses and ambition of all potential successors and think about what is best for the business.
- Have an appraisal done to get an accurate and emotion free assessment of the business’ value.
- Important for tax planning
- Needed for negotiating with potential buyers if the business is offered for sale
- Consider the tax consequences of a succession
- All transfers of ownership have some tax consequences – gift tax, estate tax or capital gains tax
- Utilize asset transfer strategies to help minimize taxation
- Train your successors by working with them.
- Allow successors to have an opportunity to undertake the responsibilities for which they have trained
- This creates a gradual transition that allows the owner to phase out slowly, while introducing new management to the employees and clients over time.
If you want to pass your family business along to the next generation, contact the Bolinger Law Firm to make succession planning a part of your estate plan.