Many family businesses don't survive after being transferred to the next generation and this is often due to a lack of good succession planning.
Estate planning is essential for anyone who owns a family business. Businesses are usually the largest asset in the owner's estate and as such, have more intricacies and details that need to be managed.
By creating an effective succession plan, you can be sure that the business is transitioned smoothly from one generation to the next, while also minimizing tax liabilities and ensuring that the business continues to thrive.
A major part of creating this plan is communication.
Communication is key to ensuring that all of the parties involved understand their roles, responsibilities and expectations and also confirms that everyone is on the same page.
There are often situations where children don't want to take over the family business. They may want to work in the business, at present, to gain experience that they'll parlay into a different career, but do not plan on running the company.
This is why it is a good idea to have discussions and determine the childrens’ feelings about this.
There was one case where the parents thought their son would want to take over the family business. When he got there, though, he decided that it wasn’t what he wanted for himself.
The son communicated his personal expectations to his family and went to back to school. He worked in the business to gain experience and used that, along with his education, to start a career that was better fitted to his goals and aspirations.
Without a successor, the parents saw that there was an opportunity to sell the business and set themselves up, very comfortably, for retirement.
It was a win-win situation and it was all because they sat down and discussed their wants and expectations.
The son went off in his own direction with solid work experience and a good educational background, resulting in a great job in the oil and gas industry, while the parents sold their business and are now enjoying a meaningful retirement.
Had the son been less attuned with what he wanted for himself, or failed to communicate this information, he may have been placed in a position that he was not suited for, putting the company at risk and potentially reducing the open market value of the business.
Similarly, there are situations in which families do not realize that their children plan on taking over the family business. Perhaps your children have moved away to gain experience, with a plan to move home once they are needed to take over the business.
If this is not properly communicated, parents may prepare and implement a plan that is dependent on selling the business or leaving it to another beneficiary, even though they wanted to keep the business in the family.
Ultimately, the key to any successful business plan is ensuring that you and your beneficiaries have communicated with one another. This guarantees that each member has a strong understanding of what their role is and what their expectations are. In doing so, you can be sure that everybody involved enjoys the life they want for themselves while also making the best decisions for your business.
