Eventually, everyone wants (or will be required) to retire.
If you own a family business, retirement is not just a matter of deciding not to go into the office one day. In addition to ensuring that you have enough money to retire on, the whole question of what happens to the business when you are no longer running it becomes paramount. Who is going to manage the business when you no longer work there? How will you transfer ownership of the business? Will your business even carry on or will you sell it? Will the next generation reap the benefits of your life work or will it all go to waste?
Business succession planning seeks to manage these issues by setting up a smooth transition between you and the future owners of your business. With family businesses, business succession can be especially complicated because of the emotions involved and because most people are not that comfortable discussing topics such as aging, death and their financial affairs.
However, comfortable or not, business succession planning should be a priority for any family business.
More than 70% of family-owned businesses do not survive the transition from founder to next generation. In most cases the “killer” are costs, taxes and more commonly, family discord. A good family business succession should address these issues.
Business succession planning is broken into the following main issues: management, ownership, costs, and taxes.
It is important to realize that management and ownership in a business are not necessarily the same. You may decide, for instance, to transfer management of your business to just one of your children but transfer equal shares of the business ownership to all your children, whether they are actively involved in operating the business or not.
For many family businesses, the family is the primary emphasis of succession planning. Whether you are thinking about the future management of your business, how ownership is going to be passed on to the next generation, or, on costs and taxes, you will not be able to help thinking primarily about how your decisions will affect your family.
No matter what are your personal thoughts about the ability of those that will “inherit” your business to manage the transition of your retirement (or death) and the running of the business, having an appropriate business succession plan in place will help those in charge of the business to be make the transition and manage the business successfully.
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