You worked hard to make your family business a success. Long sleepless nights, complex projects, managing clients and team members, you’ve seen it all; the business is a part of you. All of which makes it hard to know when it’s time to pass leadership on to the next generation. Succession planning can help.
Transitioning out of leadership into the next phase of your life is a difficult, emotional process on a personal level. At the organizational level, it’s a whole new ballgame. Developing a succession plan for your business is an unavoidable step to creating a smooth transition for your company that leaves you with the knowledge that everything you’ve built will continue to grow for decades to come.
How do you prepare yourself, and your business, for the inevitable change in leadership? The first step is to start the planning process as early as possible. Starting early has a number of benefits, not least of which is the ability to get a full view of what your business looks like today – and what it might look like after you’ve handed over control. It also provides the opportunity to examine your leadership style and prepare your organization for the differences between yourself and the next generation. Early planning – even before you have a clear idea of what your exit will look like – provides the time necessary to develop strategies and contingencies for the future success of your organization.
Also important is to build flexibility into your plan, allowing it to evolve and change as the needs of your organization and your family change. While you may initially plan to cede all control to your children when you leave, this can change based on circumstances in the market or personal relationships with your family. Starting early with a plan designed with flexibility in mind allows you to create a structure that can be implemented immediately in the event of an emergency. It also leaves room for amendments should things not go perfectly according to plan.
Another key area to consider for effective succession planning: how will control and equity be distributed? You may want to hand everything over all at once, or you may want to maintain some amount of high-level control while distributing equity to your children. This can lead to changes in the capital structure of your business, such as the creation of non-voting stock to provide hand down equity while maintaining a class of voting shares to remain in control. This method can also be used to distribute general equity to your children who aren’t involved in the business and controlling interest to those who will be running the organization. These decisions can also impact your estate plan, creating both opportunities and pitfalls in tax planning for the business and your family’s personal assets.
Finally, setting up a succession transition for your business requires the consideration of non-business-related factors, such as maintaining family relationships. Plan accordingly for members of your family that won’t be involved in the business to prevent hurt feelings and maintain your legacy for the long term. Your plan should also take into account the intangible ownership benefits that you would no longer have access to, such as health insurance through the business, travel benefits, and company-owned assets such as a company car. These will all factor into both your business succession plan, as well as your personal plans for life after you have moved on.
When you are thinking about how you want your transition to go, it pays to have knowledgeable experts at your fingertips. PROVIDENTIA LAW has years of experience helping executives and business owners plan for their eventual exit, in terms of both their business and their personal goals. We have worked with various global companies and family businesses, and our focus on building long-term relationships means that we will be there to help when circumstances require revisions to your plan or an entirely new structure. For more information on how we can set your business up for continued success in the future and learn more about our exclusive rates for first-time clients, visit our Contact Page, email us at email@example.com or give us a call at (408) 560-7010.