When a person in Denver sits down and makes plans to establish their own family business, the idea that they will eventually leave the business may not cross their mind. However, succession planning can be made part of the business formation process. Having a succession plan in place from the get-go can help ensure the family business is left in the hands of the right person.
A succession plan can see that the process of transferring the business from one owner to another owner runs smoothly. When it comes to family businesses, one must account for family dynamics. After all, family members have relationships with one another -- some good, and some bad -- meaning transferring the family business on to a relative can be an emotional affair. Moreover, many people find that having discussions with their loved ones about finances and death can be unpleasant and awkward. This may be why, according to one source, over 70 percent of family business are not passed on from the original owner to the next generation. A succession plan can help prevent this.
When one is developing a business succession plan, they may want to make sure their plan addresses these three topics: taxes, ownership and management. For example, the owner may want to have only one child manage the business, especially when that child has played an active role in the business. When it comes to actual ownership of the family business, the owner may want to give all their children equal shares. Alternatively, the owner may want one child to have a larger share than another, depending on how active the children are in the business. There may also be tactics that can minimize what taxes will be owed when the owner passes away.
Business succession plans can be executed when the business is formed, but even if they are not, developing one earlier rather than later may be a good idea. The owner's relatives should be included in discussions regarding the development of a business succession plan. This helps ensure that their feelings are addressed and that they can agree on their goals when it comes to the family business. In addition, once a successor is chosen, owners can train them while they are still working in the business. With a business succession plan in place, a family business can remain in the family for years to come.
Source: The Balance, "Tips for Successful Family Business Succession Planning," Susan Ward, Sept. 18, 2016