In our last post, we began looking at the importance of business succession planning, especially for family owned businesses. A great many family businesses end up being passed on to individuals outside the family. As we noted, this isn’t always a bad thing—in some cases children don’t have the talent or interest in carrying on the business. In other cases, it happens because of inadequate planning.
Business succession planning for family-owned businesses usually presents additional challenges, partly because there are more stakeholders than in ordinary businesses. Family-owned businesses tend to be more tight-knit, and the direction the business takes can have a profound effect on the family, particularly if it is multi-generational and extended family members are involved.
A great variety of tools and techniques can be used to help family-owned businesses plan for a smooth transition when a major life event impacts the business. Business owners can put in place buy-sell agreements a process for evaluating who is best equipped to step into vacant roles.
The tools used in business succession planning depend, to some extent, on the business structure. A sole proprietor who has hired family members as business employees over the years will approach businesses succession planning differently than would family members who are partners, or members of a limited liability company. Whatever the business form, though, early planning and periodic review and updating of a succession plan is critical.
Also critical is to coordinate estate planning documents with business succession plans to ensure everything meshes together smoothly and there are no questions about the direction the business should take after the death of a business owner.