October 10, 2013

Succession planning for a family business is often no easy task. Recently, an article in Forbes outlined the five necessary steps for a viable succession plan. The five steps include:

1. Planning for the general transition of the business: The article notes that only one third of family businesses successfully make this transition.
2. Creating a plan that aligns the family interests: This is important because the succession of a business must serve many family goals. Not only must it pass the business on to the next generation, but it must also provide a retirement income for the current owners.
3. Creating a buyout agreement that balances financial returns: Often it is difficult to value a family business. While the retiring owner may look to the balance sheets for the value, the real value of the business is often based on a model of earnings capitalization.
4. Creating a succession plan that quells any potential interfamily disputes: Often, interfamily disputes can spell the end of a family business. These disputes are most typical where the interests of all family members are not aligned. Pay particular attention when there is a divorce or death that leaves a non-involved family member stock.
5. Avoid potential estate and inheritance issues, such as tax and probate delays that may hold up the succession of the business.