FAMILY INVOLVEMENT CAN BE GOOD BUSINESS
As a family business grows, the owner must ultimately consider how the business will prosper when he or she exits the company. With proper preparation, the new leadership transition can go smoothly.
It will be important to determine which family members will be active in the business, what their roles will be, how they will be compensated, and what compensation inactive family members will receive. Your ability to entertain a variety of viewpoints and articulate your own interests is crucial to the success of these discussions.
SUCCESSION PLAN COMPONENTS
Here are some important factors to consider in a business succession plan:
Your age and current state of health, expected rate of business growth, the ages of your spouse and children, and their abilities and interests.
Flexibility to cover changes that may occur within the business and your family.
A well-thought out proposal for designating your successor. It will be important for you to provide the necessary training for your successor’s seamless transition into new leadership.
Stock transfers, which will involve careful evaluation of income, estate, and gift taxes. Transfer taxes may be reduced through use of the applicable exclusion amount and the annual gift tax exclusion, while stock options may be used to reduce income taxes. However, extreme care and planning are required to avoid having stock transfers drawn back into the estate of the business owner. Be sure to consult your tax advisor for specific guidance according to your unique circumstances.
A discussion with your family about structuring a buy-sell agreement, entity agreement, or cross-purchase agreement funded by life insurance. If an unfunded plan is put into effect, the family owners who will ultimately be buying your interests may not have the cash or the borrowing ability at the time of your death.
An analysis of the immediate, intermediate, and long-term goals of your business based on financial forecasts and budgets that look at fluctuating conditions, and also measure actual results.
The inclusion of non-family members on the board of directors to bring new ideas to the business. Often, associates outside the family can help as mediators, especially in the event of a family dispute.
A solid business succession plan that acknowledges the needs of the family and the wishes of the owner needs to be addressed in such a way that moves all the involved parties forward into healthy future growth and successful new leadership.