Would it surprise you to know that roughly 90 percent of all businesses in America are family-owned? Perhaps even more surprising is the fact that only 30 percent of them are passed on the next generation within the family. Of that small 30 percent, less than half make it to a third generation. It is a shame that so many family businesses get lost, absorbed or simply abandoned once the original creator dies or retires. One way that can greatly protect a business for generations is creating and implementing a succession plan. This article is going to cover some key aspects of a succession plan and questions that should be answered as part of creating this document.
Why a succession plan doesn’t always happen
One of the largest reasons a succession plan is not created when it should be is simply because planning for the future can be difficult. Ideally, a succession plan should be created when an owner and entrepreneur is young so they can mentor the next generation to take over the business. This is true whether the apprentice is a family member, a trusted employee or a partner. Many owners find it difficult to face the reality that they may one day have to pass the torch to another. Many companies arise from years of hard work, dedication, and sacrifice. It is therefore important to find peace of mind by knowing that a succession plan addresses who will be in control of the business, and how it will be operated in the future.
Questions this plan should address
Who will take over when the owner/operator is gone?
Ideally, this will only happen once an owner is ready to retire and can comfortably pass control when they are ready. As we all know, life can be hard to predict and unexpected tragedy can strike. Succession plans should address who should take over if the owner dies from an accident or unforeseen health concern.
How much control would you like to retain?
One key item to consider is certain gifting strategies that will business owners to transfer portions of a business into a trust account for beneficiaries and children to protect wealth for future generations. You can implement these trusts while still maintaining as much or as little control over the business as you would like. Certain estate planning documents will address if your children will one day take over the business, and how they will gain the necessary management experience to do so successfully.
Contact Bowen Law Professional Group for any questions or concerns regarding a business succession plan. This is true whether you need one, or have one that is in need of modification. Our experienced staff can help you address key items such as income streams, tax considerations, capital gains, and many other financial planning items along with the general planning tasks mentioned above.