Succession Planning for the Family Business – Is it difficult for you to imagine retiring and your children taking over your business? Perhaps you see how accomplished they’ve become but somehow can’t see them running your company as well as you and your spouse have.
You are not alone: Forty-three percent of family-owned businesses don’t have a succession plan, yet about three-quarters plan to pass ownership to their progeny, according to a 2016 Family Business Survey by the National Bureau of Economic Research’s Family Business Alliance.
The reason is simple — you’re so involved in day-to-day operations that you’re not thinking about what’s next. But the traits that have made you successful in business — your vision, communication and execution — are what you need to apply to your family’s strategic plan.
Into the Details
A rule of thumb is that you need at least 10 years to plan for succession in order to work through estate planning, taxes, liability, ownership stakes and voting rights. With enough time, you can give your child or children time to learn the management tasks and for you to see how well they’re executed. You’ll be able to mentor your children, bringing them along to see if they can step up.
Determining which kids will run the business and when it will happen will impact the legacy of your firm, your family and your community. But you may be more than aware that the younger generation isn’t interested in working with you, let alone taking it over. A PriceWaterhouseCooper survey found that just half of the family firms questioned expected family members to fill key roles.
If you have kids who are interested in owning and running the family business, how can you make succession smoother?
- Draw up two major succession documents to lay out processes to help prepare for succession. First, prepare a charter ownership with agreements on what it means to be the owner of the business. Second, prepare a family constitution. These documents are foundational pieces that reflect your circumstances, needs, expectations and vision. They will make the process more efficient, more effective, less stressful and more rewarding.
- The business may not have enough liquidity to support transition of ownership within the family. Consider business factors like the economy, the regulatory environment and the state of the market your business operates in. Do you have a reliable valuation of the stock of your primary business entities?
- Take stock of such family factors as family dynamics, changing skills, maturity, career objectives and health status of individual family members. Establish mechanisms to address disruptions caused by the sudden death or incapacity of a key family member.
- If the business structure needs to be reorganized to consider tax treatment to facilitate succession planning, consider a restructuring. It may offer certain advantages, such as limiting liability or diversifying ownership opportunities.
Once you hand the company to the kids, allow them to run the show. You’ll need to let them make some mistakes that they can learn from and give them the space to do things differently.
Did you enjoy reading, Succession Planning for the Family Business?
Interested in learning more about this subject? Attend our upcoming estate planning webinars!
Have You Properly Protected Your Loved Ones? (FREE Estate Planning Workshop), Trustee and Power of Attorney Training School Webinar, Medi-Cal Webinar, and/or Probate Webinar. Get registered today for our estate planning webinars!
This website is not intended to be a source of solicitation or legal advice. General information is made available for educational purposes only. The information on this blog is not an invitation for an attorney-client relationship, and website should not be used to substitute for obtaining legal advice from a licensed professional attorney in your state. Please call us at (626) 403-2292 if you wish to schedule an appointment for a legal consultation.
For more information about The Hayes Law Firm, visit our Google My Business page.
Thanks for reading, Succession Planning for the Family Business!