We’ve all been guilty of putting off important responsibilities because they are time-consuming or stressful. For many business owners, transitioning their business can be a daunting task. However, having a valid blueprint for transitioning a business is vital to the success of a long term plan. According to a 2015 survey conducted by U.S. Trust, some of the main reasons given for avoiding business succession planning are:
- Owners have no intentions of retiring anytime soon
- Important decisions regarding future management of the business have not been made
- Owners believe family members and/or colleagues (i.e., partners) are aware of their wishes for the future
- There is a will in place that outlines wishes
- Owners are just too busy now to think about succession planning
Although reasons for delaying the process vary, putting a plan into place well before it’s needed will reduce the stress of not knowing what will happen should the unforeseen occur. Here are some of the questions that may need to be answered:
Will family members (spouse, children, etc.) have the training and ability to continue the business? In some cases, there is only one family member who knows the business—the owner. This can cause stress and conflicting interests between family members (who may now be owners in a business they know nothing about), and remaining partners or employees.
Who will assume leadership, as well as day-to-day operations? Is there a partner or a trusted employee who can make sure crucial business operations continue? If not, there could be a sudden and dramatic decrease in business valuation. This could create a “fire sale” atmosphere, leaving heirs with no other option than to sell out to the highest bidder (if there is one).
If new owners are not directly involved in the business, what will be the compensation structure for employees vs. owners? Those who are left behind to run the business expect to be well compensated. At the same time, the owner’s family may have a need for continuing income. What is the best way to make sure the financial needs of everyone involved are properly addressed?
If the business is a partnership, what happens if one of the partners dies or can no longer be involved in day-to-day operations? If a buyout is anticipated, will cash be available to effect such a transaction, and how will the business be valued if the worst should happen?A little pre-planning and documentation can lay the framework to turn a very difficult situation into an immediate course of action that will provide a fair solution to all involved.
If there are several heirs involved, and only one is interested or capable of continuing the business, how will the other children be compensated? Many family business owners want the business to transition to a child who shows interest. At the same time, they may want to make sure other children are not left out in the cold. Estate equalization strategies can help make sure one child is not unfairly favored over another. It may also prevent a forced sale of the business in order to compensate children who wish to pursue other interests.
Creating a business succession plan takes time and effort, but the rewards can be great when it comes time to pass it along. Not only will a plan help make the owner’s wishes clear, but the transition will become a lot smoother once all the necessary puzzle pieces are in place.
When you’re ready to create your succession plan for your business, we’re here to help. Call 336.774.3400 or contact us to be in touch with one of our business experts.