One of the chief concerns facing family business owners is how to effect an orderly and affordable transfer of the business to the next generation and/or key employees. Failure to properly plan for a smooth transition can result in monetary losses and even loss of the business itself. This article will explain how to keep the family business in the family.
There are essentially three levels to a business succession plan. The first level of a business succession plan is management. It is important to recognize that management and ownership are not the same. The day-to-day management of the business may be left to one child, while ownership of the business is left to all of the children (whether or not business casual they are active in the business). It is also possible that management may be left in the hands of key employees rather than family members.
The second level of a business succession plan is ownership. Most business owners would prefer to leave their businesses to those children that are active in the business, but would still like to treat all of their children fairly (if not equally). Yet, many business owners lack sufficient non-business assets to allow them to leave their inactive children an equal share of their estate. Thus, a business succession plan must provide a means of transferring wealth to the children who are not interested in, or not qualified for, continuing the business. Business owners must also assess the most effective means of transferring ownership and the most appropriate time for the transfer to occur.