Creating a succession plan is a task that business owners often put off until the last minute. However, it is an essential step in making sure that a company can be successfully passed down through generations. Wealth transfers, particularly to family members, have an incredible failure rate. Around 70% of transfers fail, and while many assume that taxes are the problem, that is rarely the case. Without a strong plan in place to protect your business, transferring ownership can result in lost value, and even the demise of the company.
Inherited wealth can quickly dissipate without having a strong plan in place to protect and grow your assets, even after you pass.
Looking Ahead To Succession
The first step in protecting your company is having a firm succession plan in place. You need to decide who will lead the business, and how they will continue to grow and maintain it. You want to know that the fundamentals you have put in place will be carried forward in terms of management style, the approach to clients and customers, and plans for future development and growth. As a business owner, you must recognize and begin developing future leaders years before you plan to step down.
At Gaslowitz Frankel, one of the most common causes of disputes we see is heirs who are not prepared to lead the family business prior to the founder’s passing..Unless the heir has been schooled in running the company and has a plan in place to do so, the business is essentially dumped in their laps when the patriarch or matriarch passes away. Many entrepreneurs talk about being “married to the business,” leaving them without the energy to think long-term, especially about the idea of eventually stepping down. But this failure to plan takes a toll on family members who will step into leadership roles and hampers their ability to succeed, hurting the business itself. In reality, every business owner, regardless of size, needs to have a succession plan in place years before they think they will step down.
Why You Need To Step Down (Eventually)
Many people avoid thinking about what happens after they are gone. Planning for getting sick, becoming incapacitated, or dying is difficult, and many business owners try to avoid thinking about succession. However, smart leaders know that thinking about stepping aside isn’t fatalistic, it is a necessary step to ensuring the continuation of the business. And there are benefits in the short term. If you are paying attention to the future leaders emerging in your company and helping to groom them for a larger roll, you will also have more freedom to take a sabbatical, go on vacation, or simply reduce your responsibilities at the office in favor of more time at home. Letting yourself control the direction of the business instead of letting it control you can be the difference between creating an enduring company and having that company go under after you step down.
Transitioning To Family
Not all family members are interested and/or competent enough to get involved in the family business. If there is more than one sibling or child, you must plan for the reality that some may want to be involved in running the company while others may only want an ownership interest.
One of the toughest questions in wealth management is how to handle passing down a business when the business owner has multiple children. If the owner wishes to have the business continue in perpetuity, finding an equitable way to split profits, assets, and responsibilities can be difficult. This is a decision that takes years of planning and cannot be put in place quickly. The more time is spent planning in advance, the less chance there is of a dispute when the time for transfer comes.
The right way to successfully transfer business wealth to your heirs can be different for every family. If you have questions about how to manage your company’s equity after you step down or pass away, call our office to speak to an attorney. At Gaslowitz Frankel, we have more than three decades of experience in resolving business and estate disputes and understand how to prevent and resolve conflicts among heirs.
