It
takes a special kind of person to turn a dream into a successful
new business. And for some, being your own boss and a successful
entrepreneur is part of the American dream. That dream, however,
can be short lived if careful thought isn't given to the succession
of your business.
Family
firms comprise 80% to 90% of all business enterprises in North
America. Unfortunately, only one third of them are likely
to succeed to the next generation. For businesses that have
made it through a generational transition, planning early
and carefully for succession is one of the most critical factors
that made survival possible.
If
you own a business, the earlier succession planning begins,
the better, even if you plan to retire many years from now.
Not only will you need time to explore your options and decide
exactly what you want to accomplish, but planning early can
also help minimize the cost to fund the transition. Besides,
it is possible a sudden illness, disability or premature death
may take you away from your business too soon, despite your
plans.
Getting
Started
Because
business succession planning involves several disciplines,
it is important to build an advisory team of professionals
including your attorney, accountant, insurance representative
and other key business- and estate-planning professionals
who understand the intricacies of business, estate and tax
planning.
Your
advisory team can help you develop an effective business succession
plan that not only addresses how you want both management
and ownership to carry on, but also helps minimize income
and/or estate taxes. For example, if you plan on keeping the
business in the family, you may need to have a succession
plan that focuses on estate planning in order to minimize
transfer or gift taxes. On the other hand, if you plan to
sell to an outside party, the plan will likely focus on an
appropriate buy-sell agreement that places a higher priority
on minimizing the income tax liability.
Your
vision for your business' future
While
an advisory team will help you develop and implement a plan
to help you reach your goals, you will need to make a number
of decisions based on your own objectives, hopes and dreams.
Here are just a few:
1.
Who do you want to ultimately own the company? One of the
most fundamental questions is whether or not your business
can survive a transition to family members. If you believe
it can, you also need to decide if ownership, management or
both should stay in the family. Family disharmony can be the
ruin of successful planning. Keep in mind, treating all family
members fairly does not require everyone to get an equal share
of the business. With proper planning, you can eliminate the
sources of potential conflict, and still give the business
the liquidity it needs to survive a transition in leadership.
2.
When do you want to turn your business over to someone else?
Will it be based on when you retire? What would happen if
you should become disabled or die unexpectedly? You can manage
the financial risk of your unplanned, early departure by addressing
these possibilities.
3.
What do you want from the business in terms of money, control,
responsibility? What specifically, do you want to sell? Do
you want to stay involved in some capacity or do you want
to cut the strings and let it all go?
When
it comes to one's own death or disability, most people prefer
not think about it than to commit the time, energy and emotion
involved in planning for it. However, if you want to preserve
your company, and you have not gone through the business succession
planning process, come to terms with whatever it is that has
been holding you back and just do it. If you don't, the financial
future for your family and business may be at risk.
"Family
Businesses' Contribution to the US Economy: A Closer Look,"
Family Business Review, 9/03.
"Passing
on the crown-Family Business: Family businesses, How a family
firm can avoid a succession crisis" The Economist November
6, 2004.
