As a family business owner, your life’s work has been spent building something you are proud of. You worked your hands to the bone to get your company off the ground, and have continued putting in hours of hard work, and at least a few late nights, through the good times and the bad. Most businesses will hit a rough patch every now and again, but your dedication and perseverance have allowed you to create a strong pillar of the community, that you hope will continue to thrive even after you are no longer directly involved.
Geddes & Company, P.C. is here to help. As a proud family-owned business ourselves, we can relate to your concerns about securing your family’s business for the future. We have helped many family-owned businesses develop succession plans tailored to the uniqueness and sensitivity of their situations and would be happy to help your business plan for these delicate issues.
Common Succession Planning Questions
The paramount question most business owners have about succession planning are how to deal with concerns regarding the ability of the next generation or planned successor to run the business once in charge. Making the jump from being a junior member of the business, to the primary owner and operator can be a difficult transition regardless of preparation. However, as we will discuss later, there are a number of ways to build your business’ succession plan that can alleviate these concerns. Below is a brief list of a number of other common issues which arise when business owners begin developing succession plans.
Passing the Torch Between Generations
If your family owned business is building a succession plan that will pass business ownership from one generation to the next, a number of issues can arise that may be cause for concern. Generations tend to differ greatly in terms of priorities, tastes, and ideals. As you prepare the necessary documents to pass your company on to your children, it will be necessary to consider whether they have a similar vision for the company, and whether they will honor your wishes.
If the answer to this question is no, you must ask yourself: Are you ok with the direction your chosen successor will take the company? Are you confident they will continue to operate as a family business? Regardless of the answers to these questions, it is possible to build clauses into your succession plan that will stipulate requirements on how the company be run in the case of your absence.
Financial Support During Retirement
Disagreements about the direction you business is heading after a successor has been put in place can be further complicated if you still depend on the business for your financial stability during retirement. If you choose to retire from your current business ownership roll, but will still need the business as a source of income, your succession plan will be vital to securing your retirement.
When a the owner of a company decides to retire and pass operations of the business on to successor, it may be necessary for a buyout to occur. It is important to remember that if you as a retiring business owner are being bought out of your interest in your company, the amount received should most accurately reflect, not only what your current stake in the company is worth, but also projections of what your stake in the company could be worth over time. By using an earnings capitalization model you can estimate the correct amount you should receive for a buyout.
It is not uncommon for families to argue. When a business is involved, these arguments can become increasingly severe, as finances always add pressure to difficult situations. Disagreements among family members about the direction of the company may arise, and the situation may become more difficult should it involved the loss of a loved one. It is important to do your best to keep temporary family issues out of succession planning, and to do what you know is best for your company and your family.
Steps to Creating a Succession Plan
A strong, well-written, and thought out succession plan offers your business security, and can ensure a happy and comfortable retirement. It is not enough to simply tell your family what your wishes are. By having documentation in place, you can legally safeguard your business and continue to receive income from what you’ve created, even after you are no longer actively involved. With the help of Geddes & Company, P.C. you can follow the steps below to build your family-business’ succession plan.
Think About Desired Outcomes
When building your succession plan, confer with your family, any business partner, and a professional such as those at Geddes & Company, P.C. about the desired outcomes you would like to see for your family and your business after you are no longer involved. Clearly determine the direction you would like to see your company go in, and your long-term vision. Take the time to think about whether or not continued family involvement in your business’ operations is essential to your succession plan, or if hiring a professional replacement is more appropriate.
Additionally, consider what streams of income you will need for a comfortable retirement, and what your role will be after you retire. This is also the ideal time to confer with potential successors and members of the younger generation to determine their interests, their desire to be involved in your business in the future, and their aptitude for your line of work.
Determine How Business Decisions Will be Made
It is important to put decision-making processes in place prior to retirement in order to avoid the potential for family disputes about your business in the future. Should disagreements occur between members of your family about how to conduct business in your stead, a structured and unambiguous method of conflict resolution will need to be established.
Find a Place for Each Family Member
Your succession plan should include every member of your family in one way or another in order to avoid the unpleasantness associated with one family member feeling left out. Not every member of your family is required to have an active role in your business. Inactive roles, or advisory roles are ideal for family members you determine may not add anything to your business, or who are disinterested in being involved.
Remember that your direct successor does not have to be a member of your family. If you are unable to confidently choose a family member to run your business, it may be best to choose someone unrelated, or to look elsewhere for a professional.
Develop a Plan for All Scenarios
Although somewhat unpleasant to think about, life often presents us with unexpected hurdles, and loved ones may pass on unexpectedly. Even if you are currently in good health and far from retirement, a business succession plan should be in place to keep your family business in the family, no matter what. It may be necessary to have contingencies built into your succession plan, in the case that you should pass away early, or your chosen successor is unable or unwilling to take over business operations. Build back ups into your plan to help handle the unexpected.
Even if your business is relatively new, a succession plan is still an incredibly useful document to have prepared in the case of unforeseen circumstances. If you are considering retirement from your family business, a succession plan will offer you the financial security and certainty you desire. By working with the planning professionals at Geddes & Company, P.C. you can build a succession plan that best fits your business and your unique family. Contact us today by phone or online to find out more about our business planning services.