Plan ahead to create a smooth transition to new owners to ensure a positive future for your business, especially when passing it down to children or other family members.
A well-laid succession plan will minimize family conflict and position your business to weather the transition successfully.
Your business must prepare to turn over both ownership and management to the next generation, says Rick Segal, of the Family Business Council in West Bloomfield. Here are some tips:
- A financial plan, developed with the help of an accountant or financial advisor, is essential for transferring ownership, especially with the burden of estate, gift and income taxes. Families who neglect to prepare for tax consequences could be forced to sell the business to pay Uncle Sam, says Mark Hooper, of accounting firm Andrews Hooper & Pavlik PLC in Okemos.
The repeal of the federal estate tax passed earlier this year will help many businesses, but the gradual phase-out and the January 1, 2011, sunset on the repeal complicate the situation and heighten the need for professional financial-planning assistance.
The financial plan should also ensure the financial security of the older generation, independent of the business. If your retirement income depends on the success of the business, you’ll have a hard time letting your children take over leadership.
- Establish clear guidelines for the education, experience and other qualifications required for family members who aspire to leadership positions in the business. Follow those guidelines in deciding what roles each child will play.
Dividing up duties based on the interests and abilities of the children is a strategy that has worked well for many family businesses.
Often it’s difficult for parents to honestly assess their children’s strengths and weaknesses, notes Steve Weisberg, of the Arthur Andersen Center for Family Business in Detroit. Input from neutral outsiders can be valuable in reaching a decision that satisfies both family members and non-family employees.
- Then begin preparing your children for the management responsibilities of the business. Involve them in decision-making and give them increasing opportunities to test their skills.
- Remember that not every family member will necessarily be involved in the business. Some may find their niche outside it. Even those who plan to stay with the family firm may find it valuable to gain experience at an outside company.
