There are many reasons for business owners to pass their company on to family members. Entrepreneurs might trust family members more than others to carry on the business according to their wishes. Family members may already be working in the business and want to continue it.
Also, a business is often the largest asset an individual has, so it’s important to make sure it gets into the right hands following retirement or death. Jason Munz, Relationship Manager at Trust Point Inc., notes, “While succession planning can be very complex, with proper forethought business owners have the ability to control how the company will continue and who will continue it.”
The first step is to recognize that even if you never want to retire, you will at some point pass on. Munz explains, “Everyone knows a story about a family feud after a parent’s death. Proper planning helps to avoid family issues and creates a comprehensive strategy that preserves and enhances the value of the business for the next generation.”
According to Munz, an effective succession plan should develop a qualified successor, provide a seamless transition of ownership, and provide sufficient funds for the owner’s retirement. Each plan should have the following qualities:
1. Transparent. You should share and discuss the plan with other current or future leaders within the business. This collaboration allows you to develop a team that can be accountable for certain actions.
2. Flexible. Plans can and do change, and any succession plan has to be flexible enough to adjust to tax and market changes, deaths, and your goals and priorities.
3. Objective. It’s easy to be emotionally biased when you’ve poured your heart into something. Gather a team of advisors to provide objective direction and information on all matters related to the succession.
4. Simple. Succession planning can be extremely complex, but don’t make it any more complicated than it needs to be. If you don’t understand something well enough to explain it to someone who doesn’t know a lot about business, then rethink your strategy.
5. Ongoing. Determine what actions need to take place and when. Consider how you will monitor progress and measure success. Include these items in the original plan and revisit them regularly.
Many resources are available to help you develop a solid succession plan for your business. Trust Point Inc. works closely with Community First Bank and can work in conjunction with your existing advisors to provide professional, unbiased advice. Have questions regarding your family- owned business? Call Trust Point Inc. today at 608-782-1148 or learn more here.
Trust Point Inc. does not provide tax or legal advice. To the extent that this material concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Taxpayers should seek advice based on their particular circumstances from an independent tax or legal advisor.