By: Attorney Amanda N. Follett, Schloemer Law Firm, S.C.
Another year has gone by and the holiday season is upon us. We know you have been thinking about retirement for years and the thought of retirement sounds better with every day that passes, which leaves you with the thought of what am I going to do with my business?
Setting up a succession plan for your business can be especially complex due to the relationships you have with your family who are involved in your business or long-term employees. Also, discussing a plan where you may not be around can be a conversation that gets pushed off easily. Perhaps this could be why less than one-third of family-owned businesses survive the transition from founder to the second generation.
An important thing to remember and consider is that management and ownership are not always the same. For example, you may decide to transfer the management of your business to one of your children or hire a manager, but retain ownership or transfer ownership to multiple children.
Regardless of what you may be pondering on for a succession plan for your family business, consider these tips:
- When should I start succession planning?
A succession plan should be started at least 5-10 years in advance of when you hope to retire. Your business didn’t just happen overnight, and your succession plan won’t either. Your shoes can only be filled by someone who has had years of training and grooming. You also want to allow adequate time for a transition period and for your successor to grow into the role.
- How do I talk to my family about a succession plan for the business?
Start by setting aside time to talk about these matters. This is an important aspect of your business and should be scheduled in, just like other business meetings. This will also emphasize to your family how important this is to you and the business.
You may wish to start by having separate discussions with separate family members. Doing so will help facilitate open and honest communication. Having children with competing objectives together on preliminary discussions could cause your children to be hesitant to share their thoughts and feelings, when what you want is to have a full understanding of these matters when you start your plans.
At some point, you may wish to consider having a meeting with your entire family together. The family meeting should be based around topics such as: what you want to happen to the business when you retire, what they want to happen to the business, what role, if any, would they like to have in the business. Doing this would give you a general idea of what everyone wants and will help guide your succession planning.
- Take an objective look at your family and plan accordingly.
Make sure you weigh your options. Children may have different skills sets, may have put different amounts of effort into the company, or may have different plans or desires for the future.
For example, your oldest child may have worked at your business the longest, but maybe your youngest child has better skills to run your business. You have a middle child, but they never really wanted anything to do with your business. Questions you should consider include:
- What are each child’s skill set?
- Do my customers, employees, or vendors have better relationships with certain children?
- What is each child’s potential?
These questions will lead to further questions to consider such as:
- Should all children be owners in the business?
- Should some receive a larger percentage than others?
- Even if all are owners, should some be managers?
- Should some children receive voting shares, and others only receive non-voting shares (i.e., should there be separation of economic rights from management rights)?
- Should children who are not involved with the business be left out of the business entirely, and possibly receive another asset during lifetime or at death?
While most parents want to treat their children equally, it is important to remember that being “equitable” is often more important than being “equal”. Children who have put time and energy into helping you build a company may have earned the right to a larger share and more responsibility than children who have pursued other avenues. Taking an objective view of your family can help the business you’ve built continue to succeed and grow in the future.
- What’s next?
You should consult with trusted advisors throughout the process. The attorneys at Schloemer Law Firm are experienced in helping local businesses successfully transfer their business from one generation to the next. If you need help starting the conversation, or deciding how to implement your plan, call us to schedule a time to meet with one of our succession planning attorneys.
If you have questions about this article or estate planning generally, please contact its author, Amanda N. Follett, at 262-334-3471 or [email protected].
More Important Reading
- Building an Effective Succession Plan
- 5 Dangerous Myths About Business Succession Planning
- Estate and Business Planning for the Family Farm
Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action. If you need legal guidance, please contact us at 262-334-3471 or [email protected]