Many of the most successful businesses in the world began as family-owned businesses. However, too often, family-owned businesses fail to survive the second generation. There are many potential reasons for this, including for example, lack of trust in the younger generation’s skill set and experience, mis-alignment of business or financial goals, intra-family personality conflicts, and estate planning issues.
A well thought-out and executed succession plan is crucial to the long-term success of your family’s business. You want to ensure continued success for the business and financial independence for the owners (both current and future generational owners). Accordingly, the following are four steps that will help your business create and implement a realistic, practical, and successful, succession plan for your business.
- Determine goals and objectives. Develop a collective vision between current and future owners. For the current owners, determine the level and importance of continued involvement and understand their emotional and financial retirement needs. For the future owners, understand their business goals and assess the degree to which they will consider adding outside management.
- Establish a process with timelines. Ensure there is a process that outlines who is going to be responsible for making decisions. It is essential that you agree on timelines in advance; timelines ensure everyone stays on track and hold people accountable.
- Create, document, and communicate the succession plan. Identify who the successors will be. Ensure everyone has a defined role to minimize confusion (even if that role is outside of the business). Decide what the plan will be: sale and purchase, sale and purchase over a transition period, or gift. Document the plan, and then communicate the plan to all stakeholders.
- Create an estate plan. Estate planning considerations are a key factor in a succession plan. Create a buy/sell agreement that effectuates the intent of the plan. You may choose to utilize professional advisors to address tax implications and minimize delays of the ownership transfer.
Following these steps will help you create a succession plan that increases the likelihood of success for your business for many generations.
For assistance with any legal matters related to your business or estate planning, contact Fournier Legal Services at email@example.com or 860.670.3535 now for a consultation and planning session.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.