Sooner or later, everyone wants to retire. But if you own a family business, retirement isn't just a matter of deciding not to go into the office any more. In addition to ensuring that you have enough money to retire, the whole question of what happens to the business becomes paramount. Who's going to manage the business when you no longer work the business? How will ownership be transferred? Will your business even carry on or will you sell it?
Business succession planning seeks to manage these issues, setting up a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved - and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs. Perhaps this is why more than 70 percent of family-owned businesses do not survive the transition from founder to second generation.
Following are five tips to get the succession planning process underway and ensure a smoother transition from one generation to another.
Five years in advance is good. Ten years in advance is better. Many business advisors tell budding entrepreneurs to build an exit strategy right into their business plan. The point is, the more time you have to spend on family business succession planning, the smoother the transition process is likely to be.
Making your own succession plan and then announcing it is the surest way to sow family discord. Opening a dialogue among family members is the best way to begin the process of a successful succession plan, where close attention is paid to the personal feelings, ambitions and goals of everyone concerned.
Perhaps the child you assume would want to run the business does not have an interest and/or the skills necessary to successfully run the business. It is important to examine the strengths of all possible successors as objectively as possible and think about what's best for the business.
Remember that management and ownership are separate business succession planning issues. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business.
How can you expect your successor to take over and run your business successfully if you haven't spent any time training him or her? Your family business succession plan will have a much better chance of success if you work with your successor(s) for a year or two before you hand over the reins. For solo entrepreneurs, sharing decision making and teaching business skills to someone else can be difficult, but it's definitely an effort that will pay big dividends for the business.
Business succession planning should be a priority for every family business. Let McGowen, Hurst, Clark & Smith help you create a plan, using strategies that will help you minimize your tax liability. A good succession plan can ensure that you have the funds you need to retire and that the business you have built continues to thrive in the hands of the next generation.