Family business succession planning is the process of identifying and preparing potential candidates that will fill in key leadership roles in the business in the future. For family-owned businesses, this often means choosing a descendant that will step up to the job when the owners are no longer able or willing to run the business. It is a continuous process that lasts for years, not weeks, and should be carefully executed to ensure a smooth transition.
Why Do Families Need a Succession Plan?
Besides preparing the next generation to take over the business, a family business succession plan allows you to maximize the value of your business, minimize tax liability and increase the likelihood that your business will remain in the family. It may help reduce conflicts among your heirs that often result in undue stress for your employees and jeopardize the continuity of your company.
You may also choose to include provisions for what should happen in a buyout situation and how your heirs may choose to fund it. Going without a succession plan is like choosing to die without a will, leaving important decisions up to others who may not be qualified or willing to make them.
How Do You Write a Family Succession Plan?
In order to write an effective family succession plan, you may want to take time and pay extra attention to choosing who will take over the business. Remember, the plan is meant to protect the best interests of your business, and not favor one family member or the other. You need to identify the person (or persons) that have the right motivation, qualifications, and emotional strength to carry on the family’s legacy.
Choosing and announcing your successor is half the battle. Don’t be afraid to enlist the help of outside professionals, such as attorneys or CPAs. You may also want to get a clear valuation of your business and analyze whether your current business is structured in a way that will allow for a smooth transition, or whether it is time to make changes. And most importantly, don’t simply assume your children will want to continue what you started. Start planning early and spend time talking to your heirs to identify both possible successors and those who do not wish to continue as a part of the business when you step down.
What Are the Key Elements in Managing Succession in a Family?
First, your succession plan should address not just the needs of the individual, but also the business needs to ensure it will operate smoothly and with proper communication, so you can identify how to perpetuate the business in the family. Second, make sure your plan is flexible, as the needs of family members and shareholders may evolve and change over time. This means including a governance plan that aligns with the family’s vision. Third, your plan should focus on maintaining harmony and reducing conflicts that could kill your business and put a strain on family relationships. While a succession plan can and should help reduce your tax liability, it would be a mistake to keep this as the main goal for your plan.
This is certainly a process that takes time and should be done carefully to preserve your legacy. If you need help creating a business succession plan for your family-owned business, contact the legal team at Oren Ross & Associates at (404) 436-1752. We are ready to assist you.