Yours truly was quoted in the most recent edition of Long Island Business News on the importance of business succession planning and partnership agreements. Read it here.
When your business succession planning involves family, a whole new set of variables need to be thought about.
In some ways, it is easier when you have family to leave your business to, in other ways it can be way more difficult as you add family dynamics to the mix
First of all, some statistics: according to the Small Business Administration and researchers at Baylor University’s Institute for Family Business, only 30% of family businesses survive from one generation to the next, and even fewer to a third generation. The mostly commonly given reason for this huge drop is the lack of a plan for an orderly succession.
If you own a family business, and would like to see your business survive into the next generation, there are a few questions you should address:
- Do your children or grandchildren want to take over your business? It is never a good idea to insist your children take over the business. You know how much hard work it is to make the business you love succeed, imagine if it was not a passion.
- Is the interested family member qualified? Has that family member worked in the business? Learned skills at school or on the job?
- If you have more than one child, there are other possibilities to consider. More than one of your children may want to go into the business, but it is possible that some will not. Many of us want to treat our children fairly when we leave our assets in our wills. Can you treat your children fairly if leaving the business to one child?
- If no family members want or are capable of running your business, do you want to hire management to run the business while retaining ownership, or does it make more sense to sell the business?
This is not a decision the business owner should make on his or her own. The best thing to do is to sit down with your family and discuss it.
One of the most important aspects of family succession planning is estate planning. If you are ready to start planning for the next generation, contact your Long Island small business lawyer soon.
Once you’re past the startup phase of your small business, it is time to start thinking about your business succession plan. If you are years from retirement, this may be the last item on your to-do list. You surely have enough to do in your daily operations without building in time to work on the future. However, succession of your business should be built into any business plan from the beginning.
Starting from your choice of name for your company (have you named it after yourself? While law firms in New York have no choice but to include the owner’s name in the name, is your company name going to prevent an orderly transition?) you should be thinking about succession planning. After all, you would not have started a business if you had no expectations it would live on to support you during your retirement, and hopefully continue to take care of your family after you are no longer able to do so.
A business succession plan should be considered years before you plan to retire in case of a sudden emergency, such as a serious accident or illness.
Business succession planning should also be an integral part of your estate plan. You must consider where the money will come from to pay estate taxes, or, if you have a partner, where the money will come from to buy out the deceased partner’s share.
f you own a small business either as a sole proprietor, or an S- or C-Corporation, or LLC, you need to consult with a business lawyer and your accountant to start planning for an orderly transition.
One of my favorite resources as a small business owner is the New York Times Small Business section. Several months ago, the Times started a blog aimed at small business owners entitled “You’re the Boss–The Art of Running a Small Business.” While not every post will resonate with every small business owner, the articles are always well-written and thought-provoking.
One of this week’s posts, Unfinished Business, relates the story of writer Jay Goltz’s cousin, the owner of a small accounting practice who died after a short battle with cancer. The story is a very personal one, but holds lessons for every small business owner.
While business succession plans can be very important planning tools, not every small business owner has a business which can be sold or passed on to family members. However, the author makes a great suggestion, one that applies to each and every one of us.
Goltz suggests creating and annually reviewing a disaster plan to include information such as bank account numbers, passwords, and insurance policy information. I would suggest including contact information for any people or companies important to your small business–your lawyer, accountant, vendors, suppliers.
Goltz includes a list of possible succession alternatives for his business. And since you are creating the disaster list to relieve stress and confusion at a time when your family may be in no emotional condition to make major decisions, he includes a “get out of guilt free” card so his spouse and children don’t feel obligated to carry on the business because they believe it is what he would want. I know in my own life, I heard my Dad express regret many times about giving up his small jewelry store to take over my grandfather’s physically demanding, struggling business after my grandfather died suddenly.
This is a call to action. Sit down with a pad and a pen, or at your computer, and start making your disaster list now. Your family will thank you for it.
Feel free to post any suggestions you might have to add to this disaster plan for small business owners. What would your family need to know in the event of an emergency?