03 Sep Succession Planning for the Family Business
During my work as a Certified Public Accountant in Western North Carolina, I interface a lot with small and medium sized businesses. Many of these businesses are family owned. As dad or mom looks to their future retirement, there is a real need for a hard discussion focused on succession planning. Who will take over the business and how will that transfer of responsibilities take place. While reading a recent AICPA article, I felt that sharing some of their tips with my clients and blog readers would benefit everyone. Keep in mind that although every business is unique, there are tried and true concepts to utilize in preparing for the transition.
Here are 5 ways to ensure a smooth transition:
- Create a Development Plan. I call this Succession Planning 101. No owner can afford to operate a business successfully without leaving behind a development plan. This plan must lay out how the potential successor will gain the technical expertise and skills required to take control and run the business. If the luxury of time is on the owner’s side, then one way to achieve this is through an ongoing assessment of the successor’s performance during the transition phase. The AICPA’s Private Companies Practice Section Succession Planning Resource Center contains valuable tools to help you put a plan in place.
- Teach Them. Go one step further and teach potential successors every part of the business. There’s nothing like learning the ropes from the owner.
- Get a Mentor. Let’s face the facts: personality conflicts sometimes make it very hard for a parent and child/sibling to work with each other. A mentor can help smooth this relationship and get the potential successor on track to taking on such a large responsibility.
- Create a Group of Advisers or Directors. It can be a good idea to bring on a team of like-minded people to help select and train a successor. As the owner, you must set certain rules for hiring family members. For example, develop qualifications for positions, and make sure they meet them, even if they are a family member.
- Explain the Tax Implications. Tax laws can trip up even the best-intentioned owners. Make sure the tax consequences of various possible succession plans are well explained and understood by the business owner, the owner’s family and the anticipated successors