There are about 5.5 million family-owned businesses in the U.S., caccording to advocacy group, Family Enterprise USA. Therefore, many business owners need to decide if, how, and when they will pass on their business to the next generation. The best way to ensure a smooth transition and successful business continuation is to have a succession plan. Business owners should develop the plan with input and support from all family members who have an interest in the business. However, that leads to the question of who should inherit the family business?
Sometimes there are no children to inherit the business. Other times, children do not want to inherit the business, and there are no other relatives or close friends they trust. Still, other business owners do not want to retire, and by the time they do, potential new owners have moved on. Before business owners can develop a succession plan, they need to get buy-in from those they want to inherit the business. The next generation of owners could be children, relatives, friends, or other business owners. Acceptance and support from all potential new owners are crucial before developing a succession plan. If children will inherit the family business, consult with a lawyer about an estate plan as there may be tax and equity considerations.
Why Does a Family Business Need a Succession Plan?
A good succession plan will detail plans for a business when the current owner retires, or if the unexpected occurs, such as a death or disability of the owner. Sadly, a business could simply die out without a solid plan for continuance in place. The business could also be lost to estate and inheritance taxes without a plan that addresses tax issues. If there is no clear plan in place for ownership transfer, family issues could harm both the business and family relationships. A succession plan will cover the details of how and when the transfer will occur, associated costs, a business valuation, and how the transfer will be financed.
What Does a Business Succession Plan Include?
A succession plan must include the right people, such as a business lawyer, accountant, financial advisor, business valuation expert, CFO, and all family members and others who will have a role or financial interest in the transferred business. Every business situation is unique and will require different plans. A succession plan should address the following in detail:
- The mission, vision, guiding principles, and values agreed upon by the current owner and all successors.
- A timeline of important personnel transitions, business deadlines, events, projects, and plan implementations.
- Identify strengths, weaknesses, and development plans for each candidate, in addition to responsibilities and management expectations.
- A business valuation, stock or other equity positions, sales and growth expectations, as well as budgets, business debts, and other important financials.
- The types of insurance that need to be acquired, renewed, changed, or stopped.
- A summary of operating procedures, including processes, policies, partners, vendors and suppliers, products and services, new projects, training, IT, human resources, customer and client demographics, and marketing/sales plans.
- A communications plan stating how employees, business partners, customers and clients, the community, and local media will hear about the transition.
Creating a succession plan for the family business is a complex task that requires the expertise of trained professionals. Passing the torch to the next generation can go smoothly with the right people helping business owners.
Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Help Business Owners with Succession Plans
If you are considering passing on your business to a family member, relative, friend, or another business, a business succession plan can help make it a smooth transition. Contact a Philadelphia business lawyer at Sidkoff, Pincus & Green P.C. today. We pride ourselves on staying abreast of all developments in business law and business succession planning. Contact us online or call us at 215-574-0600 for an initial consultation. Located in Philadelphia, we serve clients throughout Pennsylvania and New Jersey.