How Can I Ensure the Continuity of My Small Business?
One of the critical issues for small business owners seeking to establish an estate plan is to consider the transition of a family owner or closely held business. The overarching goal of business succession planning is to ensure business continuity while minimizing the potential for family disputes.
There are a number of complex legal and tax issues related to a succession plan that can affect future generations, and an individual looking to preserve a family business will be well-served by engaging an estate planning attorney with expertise in business law.
Key Issues in Succession Planning
Whether you are launching a new business or already have an established company or professional practice, it is essential to clarify the goals and objectives of your succession plan. These include establishing new owners, identifying managers who are well-suited to take over the owner’s responsibilities, and determining the role that family members will play in the business.
It is important to note the difference between the transfer of ownership and the transition of management in a family or closely held business. While managers may change over time, it is essential to select the most qualified individuals to assume executive responsibilities; these may or may not be family members. At the same time, family members may be capable of taking on specific roles in finance, sales, or operations.
While discussions about succession planning can pose difficulties for family members, and are often emotionally charged, it is crucial to set clear goals and objectives in writing, including:
- Rules for the hiring and promotion of family members
- A policy on distributions from the business and the transfer of ownership
- Guidelines for compensation of family members involved in the business
- An agreement on how conflicts will be resolved
The Bottom Line
A business owner needs to consult with his or her attorney, accountant, and financial advisor to establish a financial plan that includes income needs of future owners, executives and managers. In order to retain and attract qualified individuals, it is essential to compensate them fairly, while also protecting the business assets for future generations of the family.
In the end, a well thought-out business succession plan can only succeed if it is implemented in a timely manner with clear and realistic goals and objectives.
