Did you know that only 30% of family-owned businesses—including farms—survive into the 2nd generation? Putting off succession planning for your business is a costly mistake. A proper 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.
WHY PUT OFF A BUSINESS SUCCESSION PLAN?
Most family-owned business owners put off their succession planning because they don’t want to think about their retirement, disability, or death—or they assume those coming behind them are already on board and ready to take over.
You should not assume these things, 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 he or she no longer comes into the office. Key questions need to be answered before the family-owned business owner can “leave” the business:
- Will he or she have enough money at retirement?
- Who is going to own and manage the business when they leave?
- How will ownership and management be transferred to the new owners?
- Should the business continue or be sold to a third party?
WHY HAVE A BUSINESS SUCCESSION PLAN?
A proper business succession seeks to alleviate or lessen the above issues by setting up a smooth transition between the family-owned business owner and the future owners of the business. Business succession planning can be broken down into three distinct categories:
- tax savings
It is important 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 taxes at the transfer or death of the family business owner.
WHAT SHOULD YOU CONSIDER WHEN MAKING YOUR BUSINESS SUCCESSION PLAN?
Here is a list of tips that may assist you in your 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 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. We oftentimes find that in discussions with family, that not every family member desires to be involved in the business. 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 or 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 transferring your knowledge and skills 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 training 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.
Do you have a business succession plan in place? If not, we can help guide you in making wise decisions for your blood, sweat, and tears bought and built business. Give us a call. You don’t have to go this road alone—we can help!