Circumstances in life can change instantly, leaving your family business hanging in the balance. To survive and succeed, you should have a business succession plan in place. Estate planning for your family business is about preparing for continuity and future ownership when situations like an illness or sudden death occur. Unfortunately, only 34% of family businesses have a concrete succession plan written down.
“It can be hard for business owners, who have worked and worked to build a business from nothing, to consider not being there for the business one day. But it will definitely happen. Better to plan for the inevitable than let it all crumble for lack of a plan.”
Trevor Brewer, Business Planning Attorney
In this article, we’ll discuss what family business estate planning is, why you need to do it, and what a business succession plan looks like.
What Is Business Succession Planning?
Business succession planning is a type of estate planning for companies that involves developing a strategy to transfer business ownership. The purpose of this planning is to ensure that the company continues to run efficiently and successfully. Without a business succession plan in place, your company can easily fail for any of the following reasons:
- Lack of capable leadership;
- Disagreement between new owners; and
- Tax consequences that force the sale of the business.
It’s important to do estate planning for your family business as early as possible to avoid it failing or going in an unwanted direction.
Why Do You Need Estate Planning for Your Family Business?
If you want your family business to grow into a long-term legacy, it’s essential to lay out a vision and plan. Imagine that the primary family business owner suddenly becomes ill, loses capacity, or dies. Who takes over?
A succession plan provides instructions and gives the family business enough stability to continue. The new owners will have guidance on how to make decisions.
Another benefit of family business estate planning is that the successor owners can learn about their future roles before change strikes. You can train and mentor your children or grandchildren on how to operate the business ahead of time, providing for a smoother transition when the time comes for ownership to change hands. Having a business succession plan also allows your family members to plan for their future within the company. They can make better-informed decisions for themselves and their families, knowing what part they’ll play in the future of the family business.
Of course, there are plenty of challenges when it comes to estate planning for the family business. Choosing which child, grandchild, niece, or nephew will run the company can cause conflict. In some cases, everyone wants to run the company in the future. But some business owners have the opposite challenge: nobody in the family is very interested in carrying on the business. These issues must be addressed, but talking about these things with your family may be heavy and emotional. Hashing out arguments and narrowing down details now—while you’re all together—is better than waiting and letting your heirs battle it out on opposite sides of the courtroom someday.
What Goes Into a Family Business Succession Plan?
Although every family business is unique, certain considerations should go into every business succession plan.
Choose an Appropriate Business Structure
By strategically structuring your family business, you can minimize liability, reduce taxes, and transfer the business easier. It’s normal for family businesses to start as sole proprietorships or partnerships. However, as the company evolves, a more formal business structure can offer significant benefits. Examples of entity types appropriate for growing family businesses are:
- Limited Liability Companies (LLCs),
- Family Limited Partnerships (FLPs), and
- Corporations.
This list is not exhaustive, and the right structure for your business will depend on your needs and goals. Speak with an experienced business lawyer and accounting professional before formalizing your family business.
Select a Successor
According to the survey cited above by accounting firm PricewaterhouseCoopers, 67% of US family businesses already have the next generation of family members involved in the business. Choosing who will take over should be well thought out. Consider each person’s skills, experience, and qualifications. Now is the time to have open and honest conversations about the future involvement of each family member.
As you select a successor, remember that the purpose of the business succession plan is to do what’s best for the family business, not a particular family member.
Establish Standard Operating Procedures
If you don’t already have one, you should formalize a clear process for making business decisions. From day-to-day management to resolving internal conflicts, you want a formal process in place to avoid unnecessary confusion and conflicts.
Write a Mission and Value Statement
By writing a mission statement and documenting the family values, you provide a roadmap for the business. The next generation can then use these statements as the basis for future decision-making and can further the long-term vision for the company.
Let Us Help You Plan the Future of Your Family Business
Creating a succession plan for your family business may be difficult and emotional, but we can help. At BrewerLong, we’re a relationship-focused law firm—meaning we take the time to know you before developing any legal strategies. For over a decade, the business attorneys at BrewerLong have been assisting Florida businesses with various legal needs. We know the amount of time, money, and effort it takes to run a business, and we want to see you succeed.
Contact our office to schedule a consultation with one of our skilled business law attorneys today.
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