The Significance Of Succession Planning For Family Businesses
If you own and operate a family business, congratulations. It is not an easy task but the financial rewards can be great as well as the sense of satisfaction in meeting people’s needs profitably. What will happen to your business when you can no longer run it or decide not to? Family business succession planning can help you answer questions such as this about your business’s legacy.
At Reed Law, PLC, our attorneys focus on asset protection planning as well as estate planning. Preparing conceptually and logistically for the eventual transition of a family business typically has to do with both areas of the law. Our lawyers are ready to help you put in place a plan of action for exiting the business someday, whether that happens through retirement, disability or death.
Challenges And Pitfalls In Business Succession Plans
It can be difficult for a business owner to acknowledge their mortality or their family’s dependence on a business model that will not remain sustainable in the long run. It can also be challenging to identify successors who would be interested in, and capable of, taking over the leadership of the company someday. When the original owner is no longer able or willing to do so, a family business succession plan will be invaluable. Without a plan, eventual business failure is a real possibility and likely outcome.
Many owners of family businesses are simply too busy to concern themselves with long-term planning. Rather, they are consumed with the day-to-day operations of a successful business: ordering supplies, taking customers’ orders, providing goods or services and keeping records, among other obligations.
Making The Decision To Plan
Experts tell us that most family businesses have no succession plan. Owners of family-run businesses often realize sooner or later that they need to prepare for eventual changes in leadership. Understanding the most advantageous structure of the business can be part of this process. For example, a partnership may be destined to convert to a limited liability company (LLC) or a publicly traded corporation. Succession planning should be an integral part of any such developments.
We are confident that our clients will benefit from our guidance in this area at any stage of a business’s lifecycle. We will:
- Inform you of legal and tax implications in business transfer
- Discuss with you the importance of ensuring business continuity and minimizing disruption to business operations
Ultimately, we want you to be ready to do the right things for yourself and your business when a change in ownership and/or leadership eventually takes place.
Examples Of Successful Family Business Transitions
Some of our clients’ family businesses have successfully weathered transitions in some form or combination of the following ways:
- Ownership at the time of the retirement, death or disability of the original owner has transferred to a sibling, child, cousin or spouse.
- The business has been sold to a new owner or transitioned through a merger or acquisition involving another company.
- Shares have been sold to investors through promissory notes or gifts.
- The business has been incorporated into a family trust.
- Managers have been given options to buy out the business.
- Employees have bought the business through an Employee Stock Ownership (ESOP) or cooperative
- The business has been liquidated and disbanded.
Consult with one of our lawyers to begin devising your own exit strategy and business succession plan. We will do the heavy lifting of putting your plan in place while you carry on your business obligations.
Frequently Asked Questions About Succession Planning
Our family business succession team is ready to answer your questions such as the following. Personalized counsel will allow for the customization of our recommendations.
What does an ideal exit strategy look like when you have been operating a family business?
Your succession plan leading to your retirement or exit for another reason should ideally align with your personal goal as well as business interests. Focus on the ultimate goal is essential to an exit strategy. What needs to happen to allow you to retire when you are ready as well as ensure the viability of the business?
Isn’t it enough to assume that your heirs will take over your business someday?
Many business owners have had this hope, only to discover over time that:
- No available heirs are suitable for ownership or leadership of their businesses.
- Their sons, daughters or other heirs are not interested or educated well enough to carry on their businesses.
In an exploratory conversation with one or more of our business succession planning lawyers, we will help you confront such limitations in the family inheritance plan. Instead, we can help you foster a different way forward, such as preparing managers and/or other employees for an opportunity to buy your business at an opportune time.
Connect With Kalamazoo Professionals To Facilitate Your Family Business Succession Planning
We are eager to hear about your ideas for eventual or immediate succession of your family-owned business. We look forward to explaining how you can plan ahead deliberately in time to train new leaders and otherwise increase the likelihood that your business can move forward even when you can no longer take responsibility for it.
Keep the best interests of your company in mind while also communicating effectively with family members, employees and investors. Call 269-242-2332 or send an online message to get the conversation started with our Michigan business succession planning lawyers.