Keeping the family business in the family upon the death or retirement of the business owner is not as easy as one would think. In fact, almost 30% of all family businesses never successfully pass to the next generation. What many business owners do not know is that many problems can be avoided by developing a sound business succession plan in advance.
In the event of a business owner’s demise or retirement, the absence of a good business succession plan can endanger the financial stability of his business as well as the financial security of his family. With no plan to follow, many families are forced to scramble to outsiders to provide capital and acquire management expertise.
Here are some ideas to consider when you decided to begin the process of developing a succession plan for your business:
Succession planning for the family-owned business is particularly difficult because not only does the founder have to address his own mortality, but he must also address issues that are specific to the family-owned business such as sibling rivalry, marital situations, and other family interactions. For these and other reasons, succession planning is easy to put off. But do you and your family a favor by starting the process as soon as possible to ensure a smooth, stress-free transition from one generation to the next.
In the ideal situation, management succession would not take place at any one time in response to an event such as the death, disability or retirement of the founder, but would be a gradual process implemented over several years.
Successful succession planning should include some of the following issues:
Your foremost consideration should be the needs of the business rather than the desires of family members. Determine what the goals of the business are and what individual has the leadership skills and drive to reach them. Consider bringing in competent outside advisers and/or mediators to resolve any conflicts that may arise as a result of the business decisions you must make.
Be honest in your appraisal of each family member’s strengths and weaknesses. Whomever you choose as your successor (or part of the next management team), it is critical that a plan is developed early enough so these individuals can benefit from your (and the existing management team’s) experience and knowledge.
A business succession plan should not only address management succession, but transfer of ownership and estate planning issues as well. For various key non-tax contractual provisions that need to be considered in a comprehensive sale agreement or shareholder agreement read Exit Strategy For Owners: Key Non-Tax Contractual Provisions. The following documents have a key role in the succession process and should be discussed and explored with an estate and tax attorney who is experienced in integrating all of these legal instruments as part of your succession and estate plan:
Developing a sound business succession plan and having your documents drafted by an experienced estate, tax and business attorney is essential to ensuring that your successful family-owned business can survive through the next generation and hopefully future generations. Please contact the office for more information and a consultation regarding how you should proceed with your business’ succession plan.
I highly recommend Steven J. Fromm for all your estate and tax planning needs. He has the most complete and thorough knowledge of current as well as pending federal, state, and local tax codes of any professional that I have ever been involved with. His ability to totally sort out your current financial condition and relate it to a plan to minimize your tax liability and allow you to sleep at night is without equal. He is professional, timely, creative, and an advocate for your needs, whether its personal or business. You can be assured that you will be well taken care of, with cutting edge/ sound financial and tax advice by Steven J. Fromm.” December 8, 2009. Brad Gildin
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I highly recommend Steven J. Fromm for all your estate and tax planning needs. He has the most complete and thorough knowledge of current as well as pending federal, state, and local tax codes of any professional that I have ever been involved with. His ability to totally sort out your current financial condition and relate it to a plan to minimize your tax liability and allow you to sleep at night is without equal. He is professional, timely, creative, and an advocate for your needs, whether its personal or business. You can be assured that you will be well taken care of, with cutting edge/ sound financial and tax advice by Steven J. Fromm.
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