Many family-owned businesses assume they already have a succession plan in place since ownership is typically passed along to relatives. That assumption simply isn’t good enough. In fact, a well-considered and documented succession plan is critical for family-owned businesses. A succession plan helps the eventual transfer of ownership to go smoothly and offers additional benefits including business continuity during a transfer or unexpected events, such as the illness or death of a business owner. Succession planning should be done well in advance of ownership changes.
There are several components of a succession plan. These include:
– Business structure, goals, and vision;
– Business valuation;
– Decision-making process;
– Contingency and Estate planning; and
– Exit strategy.
While every aspect of the succession plan is important, there are a few areas to which family-owned businesses should pay special attention.
While the decision-making process is not necessarily different for family-owned businesses, it can have further reaching implications that extend outside the walls of the business. When appropriate, family members should be involved in the decision-making process. Also, it can be helpful to have a conflict resolution plan in place, before it is needed, to resolve conflicts between family members as quickly and harmoniously as possible.
Contingency and estate planning
There are two main components that must be addressed when conducting contingency and estate planning. For contingency planning, there must be documented directions regarding how the business should be handled, from both a management and financial perspective, in the event one of the owners falls seriously ill or passes away. Estate planning must address how the business will be transferred from a financial perspective and should also address the tax implications of the transfer for all parties involved including the previous owner, new owner, and the business.
In a family-owned business, a documented exit strategy can help to clearly outline roles and responsibilities for all involved parties before, during, and after transfer of ownership. This is decidedly important for family-owned businesses since the lines between work and home may be blurred. An exit strategy can help to define a timeline for the transition of ownership so that every party understands the level of involvement expected from the beginning to the end.
For family-owned businesses, succession planning is vital for a successful and profitable transfer of ownership. A Certified Business Intermediary, or business broker, has the expertise and experience to put together a plan that works for the people involved and the business. Done right, the succession plan will help to build value for the business and offer financial security for all involved. Contact Acuity Business Group today to get started on your succession plan.