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If you’ve spent years building a successful business – perhaps you’re already on the second or third generation – then you’ll want to ensure it can continue long after you’re gone.
Hopefully you have some form of succession plan in place for when you retire, but it’s important to ensure this is formalised. Although it’s not nice to talk about, you also need to cover what would happen in the eventuality of your death. And this means looking at your business succession planning, as well as your estate planning.
Getting the plans in place early could mean the difference between the failure, or long-term success, of your business. Often the biggest complication around that is inheritance and the nitty gritty of who gets what.
Figures suggest more than two-thirds of family businesses don’t survive the transition from one generation to the next, so if you don’t want to be in that category, it’s worth making sure you’re fully prepared.
There’s a lot to consider, including who takes over, who’s going to own what, who will be in charge and taxes. Let’s have a look at some of the issues that might crop up.
Is your business a corporation?
Before you can get into who inherits what, you first need to make sure that your business is structured in such a way as to make your succession plans possible.
If you’re the sole proprietor of your business, or it’s a partnership, it will be indistinguishable from your personal assets and therefore cannot be passed on as part of a will. If you want to hand the business over to one or more successors, it might be best to form a corporation. This way it will be able to continue after the owner has died.
Who’s going to do what?
This is often the real sticking point. If you have one child and they already work in the business and you’re happy with what they do, it will probably be more straight-forward. The problems arise when people have one or more children or close relatives in the business, or a mixture of children who work in the business and others who do not.
It can therefore be useful to separate ‘ownership’ and ‘management’, so while all children could get a stake in the company – whether they are actively involved or not – you could specify that management and decision-making could be left to the child you feel is best-placed to take the business forward. You can even pass on voting and non-voting shares, which will ensure that, while everyone is left a fair stake, decisions are only made by the right people.
You also need to try and objectively evaluate who is the most capable of running the business. While tradition or some other obligation might tell you it should be a first-born, are they really the best person for the job?
Talking about family business succession
It’s important to get your family members involved in your succession planning to make sure they understand where you’re coming from and are on the same page. It could be, for example, that the child you have in mind for taking over may have a completely different 10-year plan that doesn’t align with running a business.
Getting a plan in place can avoid any surprises, and therefore arguments and upsets, when you’re no longer around.
Seeking external advice to help guide you through this process can be hugely beneficial, and this is where ActionCoach comes in. Contact Juliette Ryley ActionCoach for help on all aspects of succession planning.
