If you own your own business, a succession plan needs to be part of your estate planning. Unlike most elements of an estate plan, however, a succession plan may be implemented long before you pass away.
You will likely either want or need to retire one day, so it’s wise to have a succession plan in place. It’s generally recommended that people put a succession plan in place about five to ten years before they plan to retire.
Like an estate plan, you can make modifications to your succession plan as needed. Maybe right now, your daughter has shown the greatest interest in the business and an aptitude for it. In a decade, she may have no interest in it, but perhaps a grandson does.
Every succession plan is different. However, the primary goal is typically to designate who will take over the business when the owner retires or passes away or what will happen to the business. It doesn’t have to pass down to a member of the family. Your spouse and/or children may have no interest in it, but you may have a trusted associate whom they want to take over the business. You may plan to sell the business when you retire or have it sold if you pass away before then.
It’s crucial to consider not just what happens to the business, but what happens to the employees. If you plan for it to keep running, you want someone in charge who will carry on your vision and show loyalty to the employees who have been loyal to you. If you sell the business, you may want to take steps to help ensure that those employees don’t suffer financially.
Communication and professional guidance
Whatever you decide to do, it’s critical that you discuss your plans with your family – even if they aren’t involved in the business. Your oldest child might just assume that they’re taking it over. Your family might assume that it will be sold when you pass away, and they’ll share the proceeds.
Proactively establishing a succession plan is the best mitigation tool to avoid family disputes. It’s important to have sound legal guidance as well as financial and other professional guidance as you determine what’s best for your business and for your loved ones. Often professionals with experience will provide you with creative options or solutions to satisfy all involved that you would not have thought of yourself.
