When it comes to managing a successful family business, the head of the family is often reluctant to share control and involve other family members in the process. Perhaps it’s a matter of pride, control, or a combination of factors, but this mindset is common among modern-day family business owners. But do you know what would happen to your business if you became incapacitated or died, unexpectedly? Who would step in to manage day-to-day operations? Even if you have a successor in mind, is that successor even capable of running the business? Many business owners have no idea.
Ideally, succession planning should begin the day you take over a business. Of course, that isn’t always realistic given the amount of work it takes to operate a family business, but succession planning should be a top priority for every business owner.
A business should essentially have two plans: a short-term plan—in case you become incapacitated or die suddenly—and a long-term plan that addresses your retirement.
When designing your short-term or emergency plan, you should first implement a management succession plan, the most important component of which is naming a successor who has the knowledge and authority to lead your business in a time of crisis. This will help reassure customers, family members, and other interested parties that business will go on as usual.
After that, you will need to decide how to transfer ownership. You might wish to give or sell the business to children who work in the business. In some cases, it might make sense to sell to a group of employees or even a competitor. This helps to ensure that your family will not be forced to keep the business or to sell it cheaply.
Once your emergency plan is in place, you can begin to think about your long-term vision for your retirement and how your business fits into it. Most importantly, you will need to decide if you want to keep the business in the family or sell it.
To make that decision, you have to think about how you envision your retirement. For example, you might think a retirement playing golf sounds great, but you need to consider if you can be happy without engaging in any work at all. To get started, you might ask yourself:
If you are like many business owners, you may want to keep your business in the family. If this is the case, you will need to identify a successor from within your family or the ranks of your employees who is capable of running the business for your family. To do this, you will need to decide what qualities you are looking for in your next leader.
For example, how much experience in, and knowledge of, the business do you think is necessary and what decision-making and leadership styles do you prefer? Since you won’t necessarily find everything you are looking for in one person, you will also need to think about which qualities are most important to you. You might need a management team for the business to succeed.
You will also need to assess the interest of your children in becoming successors to the family business. Do they have the drive and desire to lead your business in the future? Or do they have other career interests that they wish to pursue? It’s important to carefully weigh the different strengths and weaknesses of each of your children as you consider the future of your business.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any tax, estate planning, or financial product or service or a recommendation or determination that any tax, estate planning, or investment strategy is suitable for a specific investor. Note that tax, estate planning, and financial strategies require consideration for suitability of the individual, business or investor, and there is no assurance that any strategy will be successful.
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