Whether you are close to retirement, want to change careers or are facing an illness , you should develop and implement a succession plan for your family business. Leaving your position requires more than just a last-minute transfer of ownership to a descendant or buyer. For the best outcome for you and your business, you need to begin the succession process years before these events occur. The longer you wait, the more likely you are to miss out on the following benefits of having a succession plan in place.
1. It ensures you have the right successor
One of the biggest mistakes family business owners make is believing that leaving the company to family members is the right choice. Although it is common practice, it is not always the best approach. First, you need to make sure your family wants to continue running your business, otherwise they may end up letting it fail or selling it. If they want to keep the business, you must determine if they have the same commitment, standards and goals as you do. You do not want your company’s reputation or success to suffer.
If family is not an option, you can select an employee and either allow the person to own the business or let the family retain ownership while the successor runs it. Your final option is to sell your business; you have a number of options to transfer ownership. Choosing a successor now-whether a relative, employee or outside buyer-also will allow for enough time for training and establishing relationships to make the transition as smooth as possible.
2. It aids in the settlement of your estate
When you have a clear plan, you increase the likelihood of your estate settling quickly. Your succession plan should not only detail every aspect of the transition but also unexpected hurdles that could appear, such as divorces, and debilitating injuries and deaths. Such preparation can prevent costly delays and family battles.
3. It offers tax savings
The type of business you own and the route you take to exit it determines the type and amount of taxes you will have to pay. Having a succession plan and an estate plan will minimize those taxes, saving you more money than you may expect. Create both plans with the help of an attorney experienced in tax law and estate planning so you can review the tax implications of your choices and avoid unnecessary taxes.