Many business owners put such extraordinary effort into their business over their lifetime that they want to see it carry on after they’re gone. If you are one of those who want to ensure that your business continues to survive and thrive, a little extra foresight and planning are in order. Seeing your family business through a smooth transition in leadership requires more from you than simply handing over the keys to the front door; it is absolutely essential that you provide clear guidance with a fully-fleshed out succession plan.
3 Critical Points
When you start to draft up a plan, make sure to emphasize the following areas:
The family businesses that pass on through multiple generations are those that think out the compensation plan for the inheritors. Many first-generation business owners who’ve reaped the rewards of their labor want to pass them on to their descendants and choose to rely on their children’s work compensation as a vehicle for the inheritance.
Bad idea. Setting a child up with a salary inappropriate for the position he or she holds tends to dampen their work ethic and leave them unappreciative of all the labor that running a business requires. Not to mention that having an unmotivated person in a key position can tank a business.
There are a variety of alternative options that will guard against this. Rather than tying non-business assets into their pay, a trust will allow you a far greater degree of influence over how they move forward with their lives. See my previous posts on the advantages of trusts, here.
In the same vein, it is critical that your children learn to prepare for their own financial futures. If big things like home ownership, parenthood, and retirement still await them, you want to be sure that they are ready to step out into the world on their own.
One essential part of this is to establish their familiarity with the company’s financials. By leaving them with the ability to look at their future earnings potentials with a clear sight, they will be more capable of planning for the future.
If you started from scratch, you are likely well aware that there are few things you can set in place and expect to run flawlessly. When the established policies are simply overlooked or deliberately broken, you need some mechanism that puts them back in place. This doesn’t mean you need to be a broken record–repeating the same thing too many times and many will begin to simply tune it out.
Instead, create a dialogue. By truly engaging your employees (or your children, for that matter) in a dialogue as you set rules in place, you will find that they gain real buy-in and much more awareness of just how important they are. Emphasize why things are done a certain way and communicate about the end goals, not just the mechanics of the rules and procedures. Speak with your children as you hammer out your business succession plan. This will leave them significantly better prepared to take on the diverse array of challenges that every business, all on their own.
We Can Help
If you are a small or mid-size business owner, call us today at 612-206-3701 or reach out via our online contact form to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. We can help you plan for the successful transition of your business when the time is right.