As the owner of a family business, assuring its continuation after your retirement represents perhaps the major goal of your estate planning activities. Nevertheless, as reported by Family Business, the National Bureau of Economic Research estimates that only about 43% of the nation’s family businesses have a formal succession plan.
Before you can devise a viable succession plan, you must ask yourself the following three questions:
- Who will succeed me as head of my business?
- When will the succession take place?
- What mechanisms can I put in place to make the transition easier?
If you are like most family business owners, you probably hope that one of your children will assume its leadership once you retire. However, you need to ask yourself if this is a realistic hope. Unfortunately, the majority of children who grow up in a family business either have no desire to take it over or lack the skills necessary to do so.
2. Succession time frame
You can never begin succession planning too early. Experts agree that a successful business succession plan takes at least 10 years to fully implement. A substantial part of this period may well entail your training your successor. Consequently, the sooner you determine who that will be, the sooner the training process can begin.
3. Succession mechanisms
Documentation represents one of the most important parts of your succession planning. Keep in mind that succession requires a number of legal documents entailing its who, what, when, where, how and possibly even why. Key players must thoroughly understand their business duties and responsibilities well before the time comes for them to begin assuming and fulfilling them.