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History preserved with planning
In the past few years, America’s business community has come to realize that it cannot prepare for everything. From the devastating attacks of Sept. 11 to the recent Wall Street scandals, business owners across the country face new and unexpected challenges.
Being prepared is key in today’s competitive business environment. Natural disasters, technological advances and expansion require entrepreneurs to plan ahead to maintain success. Surprisingly a majority of business owners do not plan for succession.
At some point, as unpleasant as it may be to consider, every business owner will retire or pass away. A well-devised succession plan is crucial to the continuation of any business, regardless of size or structure, upon your death or retirement.
There are more than 21 million businesses in the United States. Ninety percent of these companies are family-owned. Yet only 30 percent of America’s family-run businesses succeed into the second generation. The reason for this lack of success is the lack of a well-thought and organized succession plan.
Most experts agree that the time to plan is between the ages of 55 and 65. Business owners should begin the planning process while they are still healthy and active in their business. While there is no standard rule for succession plans, many suggest that implementing the plan should be a process lasting from three to 10 years.
While it may seem an overwhelming task, a good succession plan begins with your vision. First and foremost, write down your thoughts about what you want to happen when you leave the business. Next, discuss these ideas with your accountant, attorney and senior management.
Think long term when creating a succession plan. Be specific about who will control the company, how to manage growth and where the company fits in with its competitors. The most effective succession plans are a cooperative effort of business owners and their successors. The plan should include the future of new products, growth and expansion, and an assessment of the current business environment.
As each idea is formulated, set dates for transitions. Have set dates committed to paper for ownership transfer, shift of control and conveyance of day-to-day operations to the owner’s successor. Also, set a specific retirement date.
As expected, choosing a successor requires great consideration. While this may or may not be a family member, selecting a successor that will run the operation in a manner that meets expectations for business performance is probably the most difficult decision in the succession planning process.
Because a good plan occurs over a number of years, the chosen successor has plenty of time to learn the ropes and gain experience under the guidance of the business owner. Consider setting a grooming timetable to ensure a smooth and successful transition when the time comes.
Finally, determine the value of the business and consider how it will be legally transferred to the chosen successor. An accountant can help assessing a business’ value, and a good attorney can show a number of transfer options.
Because a number of business succession options exist, an attorney can consider the option that is most economically beneficial. Some options include gifting, a yearly tax-free donation of up to $10,000 that reduces taxes and allows business owners to oversee the change in company management; trusts, which may help a business avoid probate in the event of death; buy-sell agreements, which could enable an entrepreneur to protect a family’s financial future and prepare a company for succession; and life insurance , which may keep a company alive regardless of the fate that becomes it.
While you can't plan for everything, a sound succession plan can literally save your company thousands of dollars and a great deal of stress. With the help of an attorney and accountant, every American business can prepare for succession and ensure a smooth, successful transition.
