Establishing a Family Business Succession Plan
Family businesses have established themselves as sustainable entities in the United States economy. They produce roughly an astonishing 50% of the gross national product, where 35% of Fortune 500 are comprised of family-run private and public companies. However, family businesses encounter a number of problems in regard to successful continuation. Only a third of all family-run companies are succeeded by the second generation. The new generation may have conflicting interests with the previous one, including financial returns and even estate or inheritance issues.
For these kind of businesses to survive and thrive for over decades to come, it’s imperative to instill a thorough family business succession plan. Here are some ways to create a practical strategy, which enables the retiring owners to be financial independent and the next generation to foster growth and continue success.
Create Goals & Objectives
Closely reexamine the current succession plan and analyze if the desired goals are achievable under the next ownership. Do not hesitate to bring in professional management if the succeeding generation needs further development. This is the opportunity to possibly create both professional and personal goals for the new management, as well as establishing credit or pension for retired family owners.
Understand the Administrative Process
Conflict can arise during the planning process. In order to set personal preferences aside, determine a decision-making process to resolve plan disputes by instituting a “checks and balances” system within the company, attorneys, and stockholders. Document the succession plan in writing, ensure the intention and execution of the plan is clearly stated.
Identify the Business Roles
A decision must be made about who will succeed the retiring ownership. Identify and assigned new ownership and management of the business, even active and non-active roles for all family members in case something doesn’t go according to plan. Evaluate each family members’ strengths and weaknesses, further understand where to appropriately position them within the company.
Address the Tax Ramifications
Whether it’s a sale or transfer of ownership, minimizing taxes is the main objective. Review owner estate, along with other taxation issues, to devise a fair settlement. Related issues, such as corporate, partnership, limited liability, employee benefit laws, and knowledge of estate planning can be assessed by an experienced attorney who understands the family dynamic and the business’s financial situation.
Establish a Timeline
Once the plan has been comprehensively formulated, it’s time for proper execution. It’s best to commence the succession business plan at least ten years prior retirement, and five years after a retirement date is established to implement new management. Getting an early start prevents inadequate planning or insufficient case to pay taxes in case a death of the current owner occurs.