A Business Succession Plan Is a Family Affair
The success of small businesses in recent years has been nothing short of a comeback story. Prior to the financial crisis of 2008, larger companies were driving mom and pop stores out of business. The financial crisis led to widespread unemployment, many people made the decision to go into business for themselves rather than rely on employers.
The success of small businesses in recent years has been nothing short of a comeback story. Prior to the financial crisis of 2008, larger companies were driving mom and pop stores out of business. The financial crisis led to widespread unemployment, many people made the decision to go into business for themselves rather than rely on employers. This has been revolutionary for smaller operations and has ushered in a family business renaissance. Family-operation companies can be simpler and yet more complex than other small businesses, depending on the issues involved.
The Issue of Business Succession
A non-family operated small business is run by an individual who, when he or she tires of running the company, can simply sell it to someone else. The individual owner does not need anyone’s permission to do so, except if there is a business partner involved. This is different from a family business in which the owner are not running it alone, but members of the family also chip in and do their part. This can greatly facilitate running the business, but can complicate major business decisions, including succession.
Provided the family members want the company to stay in operation after the business owner retires or is no longer able to run it, there will have to be an agreement about business succession. This plan should be drafted well in advance of the transfer of the business. An advisor experienced in drawing up succession plans should consult with all of the members of the family involved in the running of the business and discuss with them details, such as long-term goals for the company and how assets should be handled
Getting Expert Advice
Since issues surrounding a family business can be complex from an emotional and financial point of view, a neutral third-party advisor is required to inform each member of the family of what can be done and what is advisable to do. There are likely to be disagreements about the distribution of duties and assets. Creating an enduring business requires hammering out these disagreements into a compromise that can work for everyone involved and enable the business to last.
Family and financial issues may call for the revision of the original arrangement. Death, marriage, divorce and the arrival of new members to the family may be reasons to amend the agreement. A professional can create an agreement that has sufficient flexibility to withstand alterations from time to time. For instance, when the owner retires, there have to be sufficient funds available for retirement. This is not just a family issue, but a concern for the business. That is one reason the advisor handling the succession plan should also be experienced in retirement and estate planning.
With a family business, particularly concerning the issue of succession, there is likely to be a dispute from time to time. Major disputes can result, especially if the succession is the result of a sudden event. Online informational articles may guide those involved toward a productive resolution of disputes and can come to an agreement that benefits all sides. It is essential to resolve complaints early before litigation results which can interfere with the operation of the business and complicate matters substantially.
What a Succession Plan Should Include
A succession plan should include a statement of long-term objectives and shorter-term goals for the company. It should be a Business plan with an eye to the future and should detail concrete expectations. The plan should describe past performance, budgets, cash flow requirements and a vision for the direction of the company. It should indicate who is going to run operations and the responsibilities of all involved.
A family business is a source of pride and can last for many generations if there is sufficient commitment to keep it afloat. A succession plan ensures your family company will stay in the family and provide a peaceful means of clarifying issues and resolving disputes. Expert advisors are needed to draw up a succession plan far in advance of when it is needed to avoid disputes once a transfer of ownership is necessary. Everyone involved in the business should be included in the process of drawing up a succession plan, and any alterations that need to be made should be handled with mutual agreement.