Most family-owned business owners put off their succession planning because they don’t want to think about their retirement, disability or death, however, business succession planning should be a priority in every family owned business. A family owned business owner’s decision to eventually retire is not as simple as no longer going to the office. Key questions need to be answered before the family owned business owner can “leave” the business: i) will he or she have enough money at retirement; ii) who is going to own and manage the business; iii) how will ownership and management be transferred to new owners; and iv) should the business be carried on or sold to a third party.
A proper business succession seeks to alleviate or lessen the above issues by setting up a smooth transition between the family owner business owner and the future owners of the business. Business succession planning can be broken down into three distinct categories: i) ownership; ii) management; and iii) tax savings. It is very important, at the outset, to recognize that ownership and management do not have to be combined. A small business owner may decide to transfer equal ownership in the business to all of his or her children, even though only one child is involved in and manages the business. The tax aspect of a proper succession plan tries to minimize estate taxes at the death of the family business owner.
What follows is a list of tips that may assist you in your own succession planning:
- It is never too early to start planning. Unforeseen events, such as death and disability, often cause a rapid transition of the family owned business. The time to begin a succession plan is now. The longer the succession plan is in place, the smoother the transition of the business will be.
- Involve your family in the succession planning process. Involving your family in the succession planning serves two purposes: 1) it cuts down family discord later, as each family member knows where he or she “stands” relative to the business; and 2) it allows you to determine the best successor for the business. You may find, in your discussions with your family, that not every family member desires to be involved in the business, as they may have their own businesses or careers they desire to pursue. Involving your family also gives you the opportunity to do an honest assessment of the persons desiring to succeed you. While it may have been your great desire to leave the business to your first son or daughter, that person may not have the managerial skills and other skills necessary to lead the business.
- Train your successor(s). Your succession plan should not be simply about transferring ownership; it should also be about training your successors to properly execute your succession plan. There are few things as devastating as watching a business fail that you worked so hard to build. In executing any succession plan, adequate time must be given to train those who are eventually going to run the business.
- Seek outside assistance. You should seek an attorney, accountant and other professional advisors knowledgeable in the succession planning field to assist you with your succession plan.
Putting off business succession planning is a mistake. A proper succession plan can help ensure that your retirement needs are met and that the business you worked so hard to build will continue to flourish for years.