As more people across the United States return to focusing on shopping local rather than giving all their money to major businesses and corporations, it’s become correspondingly more important for owners of these small businesses to develop succession plans that will allow their business to stay in operation long after they’re gone.
Of course, there are many challenges associated with business succession. Some studies indicate only about a third of all family businesses successful transfer to a second generation. Those that make the transition must deal with possible difficulties in balancing financial returns in a buyout, interfamily disputes as to who should take over the company and other estate and inheritance issues that could be both logistically and emotionally difficult.
Therefore, it’s important to work with a skilled estate planning attorney to develop a sensible succession plan that sets your business up for long-term success. Here are some of the steps you should follow in this process.
Clearly establish your goals
Before you actually commit to any plans, you should have some clear goals and objectives laid out. Develop a cohesive and collective vision for your business, with tangible goals you’d like to hit. Determine how important it is for you to maintain family involvement in the ownership and leadership of the company, while also considering whether bringing in someone else to professionally manage the company might be ideal.
You should also take some time to establish your own personal retirement goals and clarify what your financial situation will look like upon your retirement, while also keeping an eye on goals for the next generation of management of your company.
Define your decision-making process
Resolving potential conflicts will be significantly easier if you have a clearly defined decision making process before those conflicts arise. Establish processes for involving family members in these decisions, as well as methods you’ll use for dispute resolution if necessary. Discuss your plans with your family and stakeholders, and once you start working on the actual plan, make sure you put it in writing.
Create the plan
The succession plan should include information such as the successors (both the owners and managers of the company), the types of roles family members will play in the company moving forward (if applicable) and the kinds of support your family members will need to provide for a smooth transition to the successor.
Outline your business wishes in your estate plan
Your estate plan should address any taxation implications to you or your business upon the sale or transfer of ownership, or upon your death or divorce. Review your estate plans carefully to figure out how you can minimize these taxes and avoid unnecessary delays.
Establish a transition plan
It’s not enough to know who you’re transferring the company to and the kinds of support your family will provide them. You must set the new owner up for success.
Establish a timeline for implementation of the various aspects of the succession plan. If that successor is purchasing the business, consider the various financing options you’ll have available. If it won’t be an outright purchase, consider how else you’ll make the transition, including as a gift or bequest or some combination of a gift and sale.
For more tips about developing a business succession plan, contact an experienced estate planning attorney at Baker Law Group, PC.