When you have spent your life building a business, you will have multiple concerns about a transition when you are no longer able to run it. Not only will you probably want to keep the company within your family, but you will also want to ensure a smooth transition in order to keep family relationships harmonious. Business succession requires intricate planning ahead of time to save your family both hassle and money in the future.
Without this planning, it may not be possible to keep your business within your family. You should work with an experienced lawyer well in advance to devise a succession plan and put it into action. Your lawyer will help you craft a plan that works best for you, your business, and your family.
There Are Often Competing Interests at Play
Both parents and children have their own interests when it comes to business succession planning. From a parent’s perspective, they want to hand the business down to their children, while also having money for their own retirement. As much as they want to gift the company, they also need to care for their own future financial needs. From the children’s standpoint, they are probably not in a position to write a large check for the business; and, they must also consider the tax ramifications if they are gifted the company.
One survey showed that only roughly one in every three family businesses had a robust and documented succession plan. Some people may shy away from drafting a transition plan because of the time and expense involved. Others may not want to bring up unpleasant topics that can divide their family permanently; however, the expenses and turmoil will be a lot greater if the business owner dies or can no longer run the business without a succession plan in place.
Your Transition Plan Outlines Your Long-Term Vision
If the unexpected happens before a business succession plan is executed, family members may experience turmoil and uncertainty. The first thing a family needs is a long-term plan for business succession. As a business owner, you need to outline your vision while also discussing matters with the family members who will succeed you.
In addition, you will want to find a way to institutionalize your knowledge to pass what you have learned down to the next generation of owners. You may consider an interim plan that gradually shifts ownership and control of the business to family members. You may also contemplate maintaining some role in the company, even after you begin to transfer ownership.
Communicate In Advance to Avoid Discord and Manage Expectations
Your plans should not come as a surprise to your family. The last thing you want is for them to inherit a business and not know what to do with it. You should only devise and formalize a succession plan after having extensive discussions with the people who will succeed you. They need to buy into your succession plan. There may be some hurt feelings among family members who were hoping for a greater role or ownership percentage of the business. This situation is one that you will have to manage in order to ensure a successful transition.
The family dynamics around succession planning can be challenging, especially when there is wealth and income on the line. In many cases, succession and business issues concerning closely held companies can lead to bitter and expensive litigation. One or more family members may be upset because they feel left out of the business or that they did not receive the role they were expecting. Things can be even more challenging when there is family involved, both because of the hesitancy to do anything that could be perceived as hurtful and the additional dynamic of family rivalries. As the business owner, it is on you to communicate your plans to your family well in advance and incorporate them into the decision-making process as much as practicable.
Any overcommunication with family members will be better for the business’s long-term future. Here, communication is a two-way street. You should also take the time to listen to family members and their concerns when making your decisions. Those who are kept out of the loop may have more incentive and reason to cause problems when they are unhappy with the succession plan.
Include Non-Family Members in The Business
You should also consider including non-family members in the management of the business going forward. They can provide independent judgment that can function as a reality check for your family. Even if these employees are not owners, their fresh perspective can benefit the business going forward. You may want to consider creating a role where these team members have some governing authority in order to prevent family rivalries from harming the business.
Work With Other Experienced Professionals
In addition to consulting with an experienced estate planning attorney, you should also enlist the help of other experts in the transition process. One of the main challenges in transitioning a business is the potential tax burden on the family members who inherit it. You should speak with both an accountant and other financial planning professionals to learn how to fully utilize gift tax exemptions. You may also want to consider the use of trusts to save your family money on taxes.
Here, advanced planning is of the essence. You can ensure a smooth and seamless transition when you begin to plan for it years in advance.