How to Create a Viable Business Succession Plan
By: Alan Orlowsky
Many people spend the majority of their lives creating and building a family business, but very few seriously consider how to pass that business on to the next generation. Family businesses account for over 50 percent of total gross domestic product in the United States, from the small mom and pop shops to the 35 percent of Fortune 500 companies that are controlled by families. Family businesses are also responsible for 60 percent of the total jobs in America and an incredible 80 percent of the new jobs created.
Business succession planning has grown more complex over the years because family businesses have grown more complex and are less traditional than they used to be. There are a lot of potential pitfalls in business succession planning, but an experienced succession planning attorney will be able to help you avoid problems.
Establish Goals and Objectives
The first step in successful business succession planning is to establish clear goals and objectives for your business. Start by reviewing the current plan and see if the goals that you already have set are attainable. Develop a collective vision with the successors for the business’ goals and objectives.
Determine the importance of continued family involvement in the leadership and ownership of the company. If it is not important or if you have doubts, consider bringing in professional management for the business.
Establish a Decision Making Process
In order to deter future fights, identify and establish a governing process for decision making, and include in that process a method for dispute resolution. Be sure to document this in writing, and communicate what you have decided to your family.
Establish a Succession Plan
Identify successors for the business, both in terms of managers of the company and owners of the business. Try to include all family members in the succession plan, and try to delegate both active and inactive roles for everyone. If necessary, identify family members who could act as extra support for the people that you have placed in charge.
Establish a Business and Owner Estate Plan
In addition to a successor plan, you should also consult with an estate planning attorney to draft a business and owner estate plan. It should address all potential tax implications for the sale of the business in case of a transfer of ownership, death, or divorce. You should also review the current ownership agreement to minimize taxes and avoid delays in the transference of any stock. Create an agreement that is fair, reflective of the business’ value, and that will minimize taxes for everyone as much as possible.
Establish a Transition Plan
You should also consider which transition option will work best for the business succession. Outright purchase of the company, gift or bequest, or a combination are all viable options. If your heirs wish to purchase the business, consider all possible financing options from both external parties or self-financed from the retiring owners. Most importantly, establish a timeline for transitioning the business from one owner to the next.
If you wish to create or review your family’s business succession plan with an experienced attorney in the Northbrook, Evanston, Skokie, Glenview, Glencoe, or Highland Park area, let the lawyers at Orlowsky & Wilson, Ltd. help. Reach out to us today to schedule your consultation.