Creators of family-owned businesses put their heart and soul into creating a business that they love and dedicate all their time to. Yet, putting off business succession planning is a mistake most business owners make. It is never too early to put in place a business succession plan. Statistics show that only about 30% of family businesses survive a second generation take over; however, a well-executed succession plan can help ensure that transferring a business to a second generation is done easily and successfully.
An effective business succession plan will give the business an opportunity to maximize its assets, minimize tax liability and always sustain a seamless running of the business. Many do not like to raise the issue of business succession because they realize it is a difficult topic, which requires not only a lot of work, but also difficult decisions and family conversations that need to take place to avoid succession issues later on. Each successor in the family business succession plan should be aware of his or her role in the plan, and furthermore, should be trained well ahead of time to be able to take over whenever necessary, without interrupting the business functionality. Parents often have the plan of their children taking over the business and running it after their illness or death. However, children may have plans of their own for the future and are not willing to commit to taking the business over. It is best to have those conversations early on, allowing business owners to consider other people for business succession, and thereafter, plan accordingly. Business owners also do not like to think about them becoming ill, going on retirement or their death. However, not thinking about it early enough and not taking the right steps to plan often leads to unsuccessful transfer of business to other family members or dissolution of the business due to lack of interest in the family to take over.
Family business succession planning should not include only a simple creation of a document. Rather, it should include involvement from the entire family who will be responsible for running the business. It should also be implemented early on in order to have time to train all successors, which will in return provide for a quick transition, without interrupting the functionality of the business. It is suggested that one begins training successors on how to run a business 3-5 years before the planned transfer. This gives all successors the opportunity to learn all the necessary functions of the business and also allows the second generation to work together for some time, under supervision, to oversee their teamwork.
To ensure that the plan is executed with the best interest of the business in mind, it is crucial to seek help of professionals who are knowledgeable in this area and can help with creating a plan that will best serve the business and its owners.
To learn more about putting your business succession plan in order and securing your assets, give our office a call at 512-910-8977 (Austin), 210-570-2458 (San Antonio) or contact us through our website.