3 Things To Consider When Creating A Succession Plan For Your Family Business
If you've created a family business and made a success out of it, you're to be congratulated. It's not easy to start your own business, and it's even harder to make it into a lasting and profitable venture. Now that you're there, it's important to make sure that you have a plan for what happens after you're no longer able to run the business yourself anymore. Take a look at some things that you need to know about creating a succession plan to pass your business down to a family member.
Succession or Sale?
The first thing that you need to do is decide for certain whether you'll be passing your business down to an heir or just putting it up for sale. It's easy to come to the conclusion that just selling the business and splitting the profits among your heirs may be simpler than creating a succession plan. The truth is that it isn't that simple.
You're not guaranteed to find a buyer when you want one, and even if you do find one, there's no guarantee that they'll be willing to pay what the business is worth. It's rare that finding a buyer willing to pay the worth of the business happens right at the time you want to pass the business on. Creating a succession plan may be a better way to ensure that your heirs receive the kind of profits that you want them to have. They can always sell it themselves when the timing is right.
Transfer Ownership Without Losing Control
Many business owners mistakenly believe that if they want to pass on ownership of their company, they have to give up complete control at that time. However, that's just not true. You can create a succession plan that allows you to continue to maintain control and earn income from your business even while transferring ownership.
Why is this important? Because the early you begin the transfer of ownership, the more likely the succession will lead to success for your heir. It takes time for the new owner to assume responsibility and learn the ropes, and if you maintain control you can guide that process. Besides, if one of several heirs is going to be given a controlling share in the business, establishing that early can prevent hard feelings and strife after you're gone.
Equal Division is Not Necessarily Best
Speaking of dividing the shares of your company, the question of whether or not to divide the business equally among several heirs is a sticky one. On its face, it makes sense to believe that the only fair thing to do is divide the business equally if, for example, you have several children who will be inheriting the business.
However, if you look a little deeper into the issue, you'll find that giving two or three people equal shares is not always the best option. It can be simpler to chose one heir – preferably the one with the most interest in and aptitude for the business – to have the controlling interest in the business and the ability to make the final decision in case of disagreement between the heirs. You can't necessarily ensure that the business will never be unequally split in any case – for instance, if one of your heirs divorces, their share might end up being split in the divorce settlement. However, you can ensure that your business doesn't stagnate due to dissent between several equal heirs by choosing one as your primary successor.
Creating a succession plan for a family business isn't something that you should undertake on your own. A business attorney in your area can help you with succession planning for family business.
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