It is many business owner’s or founder’s wish to pass the company along to their children. It often becomes even a more critical issue when a company has been in the family for multiple generations. In decades past, the transition of ownership was simply something that just happened, but now business experts believe it is vital to ensure that there is a proper business succession plan.
What is a business succession plan?
This comprehensive plan strives to ensure that the transfer is done in a timely and smart fashion. It often considers such factors:
- The tax implications of the transfer
- A restructuring plan for the new leadership
- Avoiding costly disruptions
Navigating the leadership structure
The general rule of passing assets or businesses along has been that the oldest son is first in line. However, it is often best to analyze the strengths and interests of the children to determine a hand-picked successor and other roles if the business is to be shared. Some points to consider:
- Care must be taken to ensure that everyone understands how the transition will look.
- The smart business owner will groom the children over time, so they understand the different facets of making a successful business – this will also give the parent insight into the strengths the child or children as potential owners.
- As with any successful professional athletes, politicians or business owner, business owners should not assume that succeeding generations will have the same level of success.
- Conversely, the new owners should not remain wholly tied to what the business has always done because adapting to changing business landscapes is key to a business’s ongoing success.
- Make an effort to retain longtime and key employees through equitable compensation so they can help the next generation continue the success.
- Outside advisors can provide unbiased clarity amidst the mix of family and business.
Business succession is an important part of any estate plan
The circumstances of each family business is different, with each needing a different set of skills. Many parents find the process of teaching the business to their children to be rewarding, so start the process before the transfer happens. Once a plan comes into focus, the succession should be put in writing as part of the estate plan. This can help clarify any issue and provide guidance on how to proceed if the parent is unable to do it themselves.