A family-owned business will likely fail without a business succession plan.
You run a family-owned business.
Serving your clients or customers brings you both joy and income.
In fact, your business is your most significant financial asset.
This means you have much to lose through life events, whether disability, retirement, or death.
According to a recent Bloomberg Tax article titled “Succession Planning for the Family-Owned Business—Keepin’ it ‘All in the Family’” a business succession plan can provide protections.
What does a business succession planning involve?
Reviewing family structures.
Who is currently involved in the business?
Are your children willing and capable of leading when you retire?
It is important to prepare the next generation to carry on the attending responsibilities.
Divorce is another consideration.
You and your spouse may be happily married, but the marriages of your children could also impact the family business.
If one of them divorces and they own a share of the family business, then your family-owned business may be at risk.
An in-law could morph into an outlaw.
Outlining transfer timing.
Your family-owned business will need to move to the next generation sometime.
You will not live forever.
If you die, the business will certainly require transition.
If you would like to retire or step down from your responsibilities, you should develop a timeline.
Determining the transfer details.
How you transfer your family-owned business will have tax implications.
Many corporate structures and estate planning tools are available to create a smooth transfer.
Having clearly defined goals and working with an experienced estate planning attorney enables you to meet short-term and long-term strategic planning.
Deciding who will lead the business.
Choosing who will own and lead your family business is essential to ensuring your family-owned business will outlive you.
Many questions need to be considered when selecting new ownership of a family-owned business.
You should consider rights of ownership, levels of ownership, involvement in leadership, and type of ownership.
Will the ownership be founded in shares or percentages?
In case of divorce, you should have protections against the ex-in-law becoming a shareholder.
One way to do this is to require prenuptial agreements for those entering into an operating or partnership agreement with the family-owned business.
This should expressly exclude business property from being included in divorce settlements.
It may be wise to enact a penalty on subsequent owners who fail to create a prenuptial agreement.
A family-owned business is built from the ground up.
Protect this labor of love through proper succession planning.
Reference: Bloomberg Tax (April 5,2021) “Succession Planning for the Family-Owned Business—Keepin’ it ‘All in the Family’”