Small, family-owned businesses make up the crux of our nation’s economy. In 2011, there were 28.2 million small businesses in the United States and they make up 99.7% of U.S. employer firms. Many small business owners hope to create a legacy where their family will take over operations once they decide to retire, but it does not always happen. Business succession planning is crucial to determining whether your family should inherit the business or if you should look to other options when you decide that you no longer wish to run the company.
Early Planning is Important
The earlier that you begin succession planning for the next generation, the better off your business will be. To start, have a conversation with the next generation about whether they see themselves running the business when you are gone. It can take over a year to develop a succession plan and between three to five years to implement.
If your family shows an interest in running the business, you can decide when the best time to introduce them to the operations should be. If they do not seem interested, you can start to look to other options regarding your business for when you decide to retire.
Have an Honest Conversation
Just because you have created a successful small business, it does not mean that your children or grandchildren are cut out for business. Even if they wish to run the business, your family members may not have the aptitude for it. You should have an honest discussion with your heirs about their career aspirations and whether they should run the family business when you are gone.
You should never assume that your family members will run the company or are equipped to handle the responsibility. If you do not believe that you can objectively evaluate the situation, consider bringing in a neutral third party to decide the matter. If there are multiple family members that wish to run the business, a third party decision maker can be a fair and impartial way to choose.
Identify All Operational Roles
One of the most important parts of a succession plan is that every member who is set to run the family business knows their role and responsibilities. If more than one family member will be running the business, try to play to their strengths and not what you wish for them to do. If every person has their specific responsibilities, it can alleviate potential arguments down the road. In addition, everyone will be able to add value to the business without causing problems for others.
Not only can the business succession plan designate responsibilities, it can also help manage expectations. Voting rights, profit sharing, ownership, and other important matters can all be discussed and made explicit in the plan. Knowing exactly what is expected and the roles to be played can also bring your family together, working towards the same goal of making your business as successful as possible.