You’ve put your heart and soul into your family business, which took decades to build. When it’s time to transition it to the next generation, you’ll want to apply that same careful planning to develop a sound family business succession plan.
The fact is that less than one-third of family-owned businesses survive the transfer from the first generation to the second, which demonstrates the importance of succession planning in family business. Even in the closest families, it’s wise to have an airtight strategy in place. This can help ensure that everyone is treated fairly and that your small business continues for generations to come.
Why Is Family Business Succession Planning Important?
It is inevitable that someone in your family business will one day be ready to retire. When that time comes, an effective family business succession plan offers you the opportunity to maximize the value of your business assets, minimize taxes and sustain the ongoing potential for family business ownership. If you don’t have a plan in place, you can’t be sure what will happen to your business in the future. By being prepared, the business you worked so hard to build can continue to grow.
What Are the Benefits of Having a Family Business Succession Plan?
Understanding the importance of succession planning ensures that your business remains in the family. It can also preserve goodwill among your children and other relatives, as who receives what will be clearly outlined. Also, a family business succession planning strategy can increase the likelihood of a more profitable business and more dependable retirement income for current and future business owners.
If you have a buyout scenario in mind, your business heir can explore funding options for a buy-sell agreement during the planning process, including a bank loan, installment contract, sinking fund or life insurance. And the transition plan can be structured to give your business heir an opportunity to purchase shares of the business from siblings who may not be involved in the business.
How to Make a Family Business Succession Plan
Every transition scenario is unique. Creating a family business succession plan is no different. You will need to identify a successor you trust that has the skills and dedication to lead the business into the future. Then, you will need to consider other strategic elements, such as future roles and responsibilities, transition timelines and tax ramifications. The earlier you start planning, the more influence you will have over the transition.
Your advisers can help you create your family business succession plan. They will evaluate your business by assessing its assets and liabilities, help you write a description of the goals and objectives for the future of the business, structure a buy-sell agreement or other transition document, craft contingency plans and much more.
Get Help with Your Family Business Succession Plan
Plan your business succession strategy with help from an experienced professional. Contact your local Farm Bureau agent today. And if you currently own a farm, learn more about farm succession planning today.