Family Business Succession Planning
Anything worth doing is worth doing is worth doing right and we can help you start the process
It can be overwhelming for a business owner because the process often also entails the coordinated efforts of several professionals. But the process can also be quite exciting as an opportunity for business growth. Planning ahead will ensure that your business is structured properly, using the law to limit liability and maximize productivity.
And along the way will be easy decisions like choosing one entity over another because it saves on taxes or implementing a defined benefit/plan because the funds will end up back in the family. But there could also be challenging issues. Business owners may have to confront deeper issues like sibling jealousy and varying levels of competency. Family business succession planning can open up a lot of issues that have consciously been avoided.
We believe that we can help you with the necessary decisions so that your family and loved ones have a blueprint for success. Conversation and dialogue is often paramount and we can help you frame those conversations and counsel you and the family through the process. We can work with your team to the extent you feel we can help. But we think we can help you address those harder questions.
The answers maybe easier than it seems. There are ways and methods to equalize inheritance issues with businesses. Sometimes parents are under the mistaken belief that a child is jealous of another sibling’s treatment. Let’s take a typical hypothetical to illustrate a typical problem and also the typical solution in family business estate planning. Mom and Pop operate a dry cleaners and have two children, one who works and helps run the business and the other who works at another company. The business is the only significant asset of Mom and Pop who are worried about how to divvy up the value to their two kids upon death. What can they do?
They can make the siblings co-owners but now the brother who is operating the company would be sharing profits with her sister who has no interest in the company. The sister may want to sell her share and the brother may want to buy it, but have no money to purchase it. There are an infinite number of problematic dynamics that can occur from this example, but that can also be solved by creating liquidity for the purchase of the asset. This is most commonly done with the purchase of a life insurance on the owner’s death. The proceeds of the insurance policy will be used as a method to equalize estates. Here, in the event of Mona and Pops passing a fair value of the business will have been assessed to ensure that adequate monetary funds were available to compensate the sister.
Advanced planning can also be done if neither sibling worked or had any interest in the dry cleaners, but there was a potential worker who could be the successor to the company. Here, the business owner can find a proper valuation of the business and the owner and employees would be able to find an equitable agreement to exchange equity for time and labor. Advanced planning may lead to mom and pop closing up and selling early to pursue other goals.
We hope we can help you achieve peace of mind whatever its form and understand that business succession planning can be a difficult process to tackle. Let us help you start that process and build that bridge. The journey may turn out as fun as exciting as the destination.