Some 1st generation business succession planning questions answered
What does a successful succession plan for a 1st generation business look like?
- It is the smooth transfer of your company to the next generation, to your employees or to a third-party buyer, on your own timeline.
- A smooth transition not only takes into consideration the family members involved in the business (potential successors) but the ones that are not involved (estate equalization).
- Ensuring the transition fits into your overall estate plan, since a business transition and an estate plan are so intertwined. The business may be the largest asset in your estate, and a transition can be complicated by family working in the business and being involved in the day-to-day operations and those family members not involved.
- And of course, open communication and transparency is crucial to the continued success of your business and the happiness of your family.
How to get started?
- Start by creating a detailed inventory of your assets. Not just your business, but everything you own. This will give you a clear picture of what you own in all categories. The categories are, operating businesses, holding companies, real estate, registered assets, non-registered assets, art/valuables, deferred assets, and intangible assets.
- The purpose of this exercise is to identify what you own and who would like to be the successor of those assets when the time comes. For most 1st generation business owners, the transition of the business is of major concern, since it is most likely the largest asset in the estate. A successful documented shared succession plan is your plan A. The bulk of other your assets will be distributed after your death, based on your wishes in your Will. Don’t leave the decisions to someone else to assume they know what you want. Revisit or start your Plan A every few years.
- But what if you become incapacitated and can’t run the business? Who can step in? What is your plan B if you need to transition or sell your business before your passing? Don’t delay the planning or think it won’t happen to you. Have plan A and B ready and share it with your family.
- Build a timeline that make sense for you to retire or transition out of the business.
- Get a valuation of the business
- Ensure the business has documented policies and procedures to help with a smooth transfer of power
- Identify possible successors or third-party purchasers
Why a delay in crafting your plan can cause the opposite of what you want to happen?
None of us have a crystal ball, we don’t know when the time will come that a succession might need to happen. You might not be ready to transition your business just yet, but what happens if have to walk away for health reasons? Start the conversations and planning now. Or someone else will make the decisions for you. Like the family law act or the courts. Nothing ignites a family feud more than money or misunderstandings. There are estate litigators for a reason. I am sure you don’t want your legacy to be that you failed to plan, and it ripped your family apart.
Bottom line be transparent, communicate and get help preparing your plan.
Cheers,
Tammy
