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5 Steps to Planning a Successful Business Transfer to Family

Parent teaching their daughter about business
For many entrepreneurs, the idea of passing the family business down to children and grandchildren is a dream come true. But intergenerational transfers of business are hard to get right, and only a minority actually succeed.

How can you make sure your family business doesn't end up just a statistic? Here are five important things to do early in the process.

1. Develop Goals

Your goals and interests for your business are not likely to exactly match your children's goals for the business. What you need to do now is create a collective vision that takes into account all parties. Be flexible and recognize the value of other future goals.

Make a strategic plan of where you want the business to be in one, two, and five years. Then, write out where you want the business to be when you hand it off. Finally, find out where your successors want the business to be in their first five or ten years. Everyone needs to be on the same page and willing to work toward shared goals.

2. Gather Advisors

Plenty of counsel will help smooth out conflicts. Your succession team should involve your accountant, a business attorney, and your financial planner. You may want to consider other advisors to help with things like managing the succession or teaching the next generation about various business functions. Longtime employees can also form part of the succession team by offering input from their perspective.

Having objective, outside parties will also help you and your children understand the realities of succession and what each party can expect. It will also give you more concrete goals to achieve.

3. Determine Your Needs

Business succession isn't all about the children. Don't overlook your own needs as the one who built the company and as a retiree. What do you need to live on? How would you prefer the business to pay you for your work? Would you like to stay on in any capacity, or are you planning to fully step away?

Know what you must get out of the transfer in order to retire. By understanding this as well as a realistic value of your business, you will be able to decide between options like gifting your business to others, continuing as a silent partner, or selling for a fair price.

4. Identify New Roles

Family members are all different, and they should have different - but well-defined - roles in the business. Identify key successors that are likely to thrive in certain roles. If you have children who are good with people, good with numbers and processes, or good at selling, assign them different roles in the company. Then, allow them to start fulfilling these roles while you are still overseeing things.

If you want to pass on the business to one person, be sure that you make a realistic and objective decision about what's best for the company. Should other family members be otherwise compensated? Can they take silent partner roles? And how will the decision affect future family relations? You need to consider all of these questions.

5. Create a Decision-Making Plan

Once you identify who will have future roles in the business, you can start considering them in the decision-making process. Even before they have control, they should be involved in large business decisions that may affect future growth.

Some business owners like to start delegating certain decisions to key future players long before the transition. This helps everyone acclimate. Even if you don't want to hand over responsibility, involve successors in how you make decisions so they are aware of what's going on. Communicate your decision-making plans to everyone so that those who are involved will have appropriate authority to act.

Formulating a succession plan and implementing it is complex and takes years to get right. Start today by meeting with our accounting and business experts at Wright, Ward, Hatten, & Guel. PLLC today. Contact us now for a consultation.