Understanding the Family Business Succession Planning Process

When you own your own business, family business succession planning should be a top priority.

Understanding the Family Business Succession Planning Process

You might feel you are too busy making money right now to worry about what will happen in the future, but now is the best time to get a plan in place.

What if something happens to you? What if you suddenly become disabled, or worse? Having a good plan in place will help your family and your business.

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First Steps in Succession Planning

There comes a time in everyone's life when a person begins to think about retiring. But when you own your own business, it is not as easy as just handing in your retirement request and not going to the office anymore. You need to think about what will become of the business.

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Will you sell? Will you liquidate your assets, dissolve the company, and live on the proceeds during your retirement years? Are your children interested in continuing the business? Are they even qualified? Many businesses have gone under because sonny was not as ready to fill daddy's shoes as he thought he was.

Then there is the question of ownership. If you sell or dissolve the business, that point becomes moot. But if your children do take over, do you want controlling power, or do you want to leave the entire company in their hands? If you sell or dissolve, will there be enough money for you and your spouse if you both live to be 100?

And what about illness or disability? Medical bills and assisted living arrangements can eat up your proceeds faster than children gobble up a plate full of cookies. Will your children step in and help, or are they too greedy to give back anything you gave them?

Succession Planning For Business Owners

Family business succession planning takes all of these issues into consideration. And you are not stuck with your first draft, either. In fact, you should review your plan periodically, and make changes where needed. Draw up your initial plan at least five years in advance.

The succession planning process can be quite complicated, especially when the emotions and relationships of family members are involved. Also, many people are not completely comfortable discussing issues like getting too old to work, death and financial affairs.

Very few business owners want to admit they will ever be too old to work. Especially if they have started the company by themselves, and built it from the ground up. Letting go of a company like that is almost like losing a baby.

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Perhaps that is why over 70 percent of family businesses do not survive transfer of ownership to the next generation. Taxes and family clashes are generally the major causes. Family business succession planning can address these issues, and prevent them from making your business fail.

Understanding the Family Business Succession Planning Process

Three Main Issues

Think of family or CEO succession planning as three main issues that need to be addressed. You have to think about:

  • Management
  • Ownership
  • Taxes
Management and ownership are sometimes the same thing, but not always. You may wish to retain ownership, yet transfer management responsibilities to one or more of your children. Or you can transfer management to the one child that is most interested and qualified, but give all your children equals shares as owners.

The tax component looks to minimize taxes due upon death. Several strategies can implemented. Explore all possibilities and include the best and most feasible strategies in your family business succession plan.

Accountants and lawyers specializing in business succession planning can provide the best advice about these tax saving strategies.

Put Your Family First

When it comes to family business, your family should be the primary focus. Whether you are thinking about business management, ownership or taxes, keep in mind all of your decisions will directly affect your family.

You should definitely include them in the family business succession planning process.

Much of the unpleasant aspect of succession planning can be negated, by including those involved in a transparent and frank discussion, before any major decisions are made.

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