It’s been quite awhile since we devoted a post to business succession planning.
As we noted in our April 2 post, families that own and operate small businesses can find themselves in conflict when it is time to transfer ownership interests in the business. As we noted in that earlier post, the majority of family-owned businesses fail to make it into the next generation because so many of those conflicts remain unresolved.
Important retirement and estate planning issues are of course involved in these cases. And so, in today’s post, we will consider some of those issues.
For starters, business owners who are looking at retirement can often benefit from asking themselves whether they are really prepared to let go of the business.
After all, there are plenty of cautionary tales from the business world of company founders who wanted to get back into their company’s operations after divesting themselves of day-to-day control. Richard Schulze of Best Buy, the national consumer electronics chain, is a case in point.
If you are a business owner who is considering cashing out, it therefore makes sense to really look hard in the mirror before doing so. If your identity is closely tied up with the operation of the business, it may make sense to keep a significant amount of control over decision making for some time to come.
Of course, that look in the mirror could yield the opposite conclusion as well. It could confirm a business owner in the belief that it is time to put an effective plan in place for retirement and asset transfer.
In a family-run business, however, the succession plan that is needed to make this happen has to be handled with great care. One common mistake, when multiple children are involved, is mistaking fundamental fairness with the distribution of uniformly equal ownership shares.
This can be bad for the business when all of the children are not equally engaged in the business.
Passing along rigidly uniform shares in the business to all children may also not be what is best for children who are not much involved in the business. This is especially true when a more nuanced estate plan could arrange the transfer of equivalent assets to those children in other ways.
Source: CNN Money, “The right way to leave your business behind,” Anne Fisher, Dec. 17, 2013