Families are tricky. Family businesses can be trickier.
Whether it’s your local pizzeria, medical office, Fortune-500 stock company or anything in between, having a succession plan when handing down your business is the best way to keep your business afloat and still want to invite your kids over every Thanksgiving.
Why You Need a Succession Plan
One of the most common mistakes parents make in handling the transfer of a family business is to do it without proper planning.
Many times, this means parents are rushing to transfer responsibility to their young heirs. First of all, giving the children power before they have become totally familiar or comfortable with the business is a huge risk. Several obsolete family businesses met their demise this way. Why? Because the heirs were not ready for the responsibility or pressure of running the business.
Another mistake that parents make is transferring the management to their offspring who have simply not “paid their dues.” When children have not worked in the company themselves, how likely are they to become fully invested in the business?
Just because they have the family name doesn’t mean they are automatically fit to own and manage the business. Perhaps they need a few more years of grinding work to really earn their place in the company.
Having a fully-considered and executed succession plan smoothes out so many of these transitional issues. Let’s talk about what you’ll want to consider as part of the plan.
Transition With Peace of Mind
Here are a few things you’ll need in order to make your family business transition pain-free.
- Estate plan. What are your personal assets? List them thoroughly in an estate plan.
- Business plan. Perhaps the most essential thing is to simply have a business plan for five-ten years out. Re-evaluate every few years to make sure you are on the path. Consult with an attorney to begin this process.
- Parents as continuing advisors. Instead of completely relinquishing all aspects of the business, former family business owners should continue to be involved. Parents can provide valuable advice and business knowledge as part of an advisory board for the business.
- Proper timing. As noted before, parents should allot a few years (at least) to execute the business succession plan.
- Thorough documentation. Finally, make sure you have the following items for the transition:
- Trusts or Other Business Entities: Specifies how assets will be distributed to beneficiaries
- Family pact: Sets terms and restrictions for transferring stock, joining or leaving the company, resolving conflicts, and more.
- Code of conduct: Provides the rules for behavior and confidentiality for family members within the company.
We’d love to help give you peace of mind as you plan the succession of your business. Contact Hughes Law today to get started!