Succession Planning

Only one in three family-owned businesses survives the first generation of ownership. A carefully executed succession plan would often prevent this collapse. A succession plan outlines the way a business should be managed after the retirement of the current owners. It prepares the next generation to manage effectively without conflict. A succession plan will also help minimize estate taxes.

The two important elements of a succession plan are passing on ownership and management, and the minimization of taxes. Too often, planning begins with the question “How can I avoid paying taxes?” rather than considering the goals of the owners for the business, the family, and their own future.

Developing a succession plan must consist of good communication, an intentional process, and professional advice. Everyone with a vested interest in the future of the business should be actively involved in the process. This includes the owner, his family, key management, and other owners. An outside advisor will help to keep everyone focused on the goal of maintaining a successful business and can provide viable alternatives for addressing the goals of the owner.

There are several technical alternatives for the succession plan. These alternatives may be combined to help the ownership goals. The most used choices are management buy-out, selling to the employees, selling to an outsider, liquidation, or family take-over.