It’s like a child to you. You’ve nurtured it and watched it grow and develop. You’ve put your heart and soul into your family farm or small business … and it didn’t take days or weeks. It took decades to build your operation to the size, scope and value it holds today.
Creating a strategy for transitioning it to the next generation doesn’t happen overnight, either. It takes careful planning and teamwork to finalize a sound business succession plan. Maybe you’re not ready to start the conversation … or maybe you think it can wait. Why do you even need a formal plan? You have a close family. They’ll take care of everything when you’re gone.
The fact is that less than a third of family-owned businesses survive the transition from the first generation to the second.1 Even in the closest families, it’s wise to have an airtight strategy in place – especially if you want to make sure everyone’s treated fairly and your operation continues for generations to come. Having a strategy in place is one key to the future success of your business.
Advantages of Business Succession Planning
An effective family business succession plan offers you a great opportunity to maximize the value of your business assets, minimize taxes, and continue the privileges of and potential for family business ownership. There are many other benefits to developing a strategy for the transfer of your business to the next generation:
- Ensures a family business remains in the family, if desired
- Preserves goodwill among the children, since heirs will be treated fairly
- Can increase the likelihood of a more profitable business and more dependable retirement income for the business owner
- If the business owner has a buyout in mind, the business heir can explore funding options during the planning process, including a bank loan, installment contract, sinking fund or life insurance
- A succession plan can be structured to give the business heir an opportunity to purchase shares of the business from siblings not involved in the business
- Investments and improvements made to the business will belong to the business heir in the future, eliminating the need to "buy them a second time"
Elements of a Business Succession Strategy
Every business succession scenario is unique. Your business succession team of advisers can help you bring all the elements of your business succession strategy together. Common elements include:
- An evaluation of your business, including its value and liabilities
- A description of the goals and objectives for the future of the business
- Determination of your business successor
- A buy-sell agreement or other transition document or agreement
- Your retirement plan
- Life insurance and long-term care coverage
- Completed and updated estate preservation documents, such as a will, trust and powers of attorney
- A timetable for implementation of the transition
- Contingency plans