When you’ve poured your heart and soul into creating a family business, the last thing you want to think about is handing over the reins to someone else — but you can’t run your business forever, even if you wanted to.
I come from a long line of family businesses — in fact, my grandfather’s business is currently in its third generation.
And although they did some planning and preparation to ease the transition, mismanaged expectations created some emotional trauma and bitter words, leaving the family divided.
Unfortunately, transitioning a business to new ownership isn’t as simple as tossing your kids the keys as you head down to the Mexican Riviera to sip on margaritas — if you want the transition to go smoothly (and avoid excess taxation and family squabbles) you need a succession plan.
What is a Succession Plan?
The British monarchy is an example of a succession plan — everyone knows who will inherit the throne, and that person is groomed from birth to take over the duties and responsibilities of the crown.
While I’m not suggesting you train your toddlers to take over the boardroom, you do need to plan ahead.
- Who will take over — will you pass it down to a family member (or members), sell it internally to your managers/employees or sell it to an outside party? Each of these scenarios require different strategies.
- What are the tax consequences of succession? Your plan should include ways to minimize the effect of the capital gains tax.
- Does your successor share your values and goals for your business — is this important to you?
A succession plan is a process that encourages you to analyze all aspects of your business —not an event. So it could take several years before a plan is in place that ensures a smooth transition of ownership.
Why do I need a Succession Plan?
No one goes through all the work, risk and sacrifice to create a business without wanting it to survive — and long-term survival of your business (and the preservation of the wealth it has created) depends on strategic succession planning.
There are many reasons business owners shy away from creating a succession plan.
- They’re extremely busy and caught up in the day-to-day challenges of owning a business
- They have an aversion to the reality that they won’t be around forever — or assume succession will occur naturally
- They know how complex a succession plan can be and find the prospect of creating one overwhelming
But not having a succession plan in place puts your business at considerable risk; inviting disruption, uncertainty and conflict.
Having a solid succession plan not only drives the growth of the business, reduces taxes, and sets the stage for retirement — it can help preserve family harmony and ensure everyone will still gather around the table at Thanksgiving.
How do I create a Succession Plan?
Creating a succession plan is a lengthy and involved process — but if you have the right support it doesn't have to be complicated or overwhelming.
At the very least you need to involve your lawyer, accountant and financial advisor — and possibly a transition specialist.
I’ve worked with many families who have transitioned, and it’s been my experience that those who pay for a transition coach have a much smoother transition — saving the family from heartache, turmoil and excessive taxation.
So when you consider the emotional impact a transition can have on families (creating a wedge and threatening the transition), the question isn’t, “Can I afford to?”, but rather, “Can I afford not to?”
Some final thoughts...
Passing on your business and entrusting your legacy to someone else isn’t easy. And if you want to exit on your terms, you need to plan ahead.
Don’t leave it to the last minute — the worst case scenario could have your business suddenly thrust into ill-prepared hands should you suffer a serious illness or death.
This article is just a brief overview of a lengthy and involved process, and doesn’t do justice to the enormous complexities of succession planning.
Our advisors will be happy to sit down with you to discuss your business and how you can protect your wealth and your legacy. You can reach us by email, phone or by filling out our online form.