Succession Planning For Business Owners: More Important Than Ever

Grand Rapids, Michigan., December 30, 2021 (GLOBE NEWSWIRE) – A common and often costly mistake in business succession planning is not starting the process early enough. The COVID-19 pandemic has caused many business owners to reconsider their succession and retirement plans. For some, these are issues they have never addressed or even considered.

According to PwC 2021 United States Family Business Survey, only a third or about 34% of US family businesses have a solid, documented and communicated succession plan in place.

By waiting too long, an owner runs the risk of not having the right people in place to run the business and of limiting tax planning options for the business and their personal assets. Either misstep can cause a business to fail as it passes from one generation to the next.

Exiting too quick or without direction can leave a leadership vacuum and damage relationships with existing clients and customers. With clear goals, a sense of urgency, and experienced guidance in place, you can help keep your business and your future secure. Developing an effective succession plan typically includes a team of a lawyer, accountant, financial planner, and often a business consultant.

There are six areas of transition that should be addressed in a good succession plan. It takes time and shouldn’t happen all at once.

• Founder’s Transition: How long do you plan to stay involved with the business? What are your retirement plans, if any?
• Family Transition: If you plan to leave your business to your children, how will the roles and relationships of power change? How will family harmony be maintained during this transition?
• Business Transition: How will business operations and customer relationships be sustained through other transitions?
• Management transition: will management be made up of family members, outside members, or both? How will the new leadership be evaluated? What is the timetable for transferring control of day-to-day decisions?
• Ownership Transition: How Will Ownership Transfer? A sale to management? A sale to a third party? A sale or a gift to the children?
• Estate Transition: How will you coordinate your estate plan to ensure the other transitions above go as planned?

Many of the above transitions will be accomplished through formal documentation (e.g. operating agreements, buy-sell agreements, trusts, etc.). Yet some businesses also use informal documents to commemorate the values, goals, vision, and mission statement of the business or family. Many successful succession plans call for periodic (often annual) succession meetings to discuss the progress of the estate and continue to prepare successors to think like an owner.

“Each business succession plan is unique to the business and the goals of its owners,” says the business and succession planning lawyer, Mike Zahrt. “While succession planning can be a huge challenge for family businesses, there are many associated issues, such as lack of communication, trust issues, and different expectations for the business, can be reduced or eliminated by doing simply your early due diligence and using experienced legal and financial advisers as resources.

If you are one of the 66% of small businesses without a plan in place and have questions about developing your business succession plan, contact the Foster Swift business succession team.

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• Small business owner in front of the store

Kimberly P. Hafley
Foster Swift Collins & Smith
517-371-8112
[email protected]

Source: Fostering Swift Collins & Smith