An appropriate succession plan can help ensure the smooth transition of your business to the next generation or new ownership and can also help protect the value of your business. Thus, it’s never too soon to start thinking about how you want to transition your business, but the exact timing will depend on your individual circumstances. The most important factors to consider are your personal and financial goals.
Other factors to consider when determining when to start your succession plan include
- the business’s size and complexity
- the availability of potential candidates.
Usually, it’s always early enough to start thinking about how you want to transition your business, but the specific timing will depend on your unique circumstances. It’s generally a great idea to start thinking about a business succession plan as soon as possible.
This is doubly true for the business owner. Many business leaders are used to identifying significant business challenges in the short term only. This may be fine if succession truly falls decades ahead. But if it sneaks up on you because you didn’t want to deal with it, it can truly be a catastrophe.
Like many elements of estate planning, it is impossible to pinpoint when the need for a specific legal instrument will arise or when changes may need to take place. The prudence that is called for when great resources are at risk is required. Fortune favors the bold applies as much in estate planning as in entrepreneurship in general.
Elements of a Family Business Succession Plan
A family business succession plan is a plan that outlines how a family will pass down a family-owned business from one generation to the next. It may include particulars on how ownership and leadership of the company will be transferred, as well as provisions for any family members and stakeholders who may not be directly involved in the business.
A family business succession plan is essential because it helps ensure the long-term stability and success of the business. It can also help prevent conflicts among family members about the company’s future, particularly regarding the designation of a successor. It should not be as dramatic as it is in the hit HBO series, Succession. If you have watched that and do not want to live that, be sure to heed the information that we are providing here. In that show, everything that can possibly go wrong in a family succession goes wrong. Some critical elements of a family business succession plan may include:
- Ownership transfer: The plan should lay out what the new ownership structure is, if any changes are required.
- Governance and management succession: Setting up a process for identifying who is eligible and able to take over the business successfully. This likely includes drafting the procedure for choosing the successor and the consideration in that process of candidates’ qualifications, experience, and other relevant skills. The business should consider pinpointing essential job requirements.
- Training: Beyond the above, encouraging opportunities for the successor to learn and grow within the business so that they are prepared to accept the responsibility when it comes. Many transitions are unsuccessful because they fail to pay more attention to this crucial responsibility.
How Can My Attorney Assist in My Business Succession?
An experienced attorney can significantly add value to the process of drawing up a business succession plan. She can provide legal advice and aid in the development of a comprehensive plan that is tailored to the specific needs and goals of your business and your family. An attorney can help you understand the legal implications of your succession plan and ensure that it is properly structured. There are several specific ways an attorney can help with business succession planning, including:
- Reviewing and explaining in simple terms the legal options that are available for transferring ownership and leadership of the business.
- Drafting essential legal documents such as buy-sell agreements, wills, and trusts to streamline the succession process.
- Providing information about tax considerations and strategies for minimizing taxes that may be levied during the transfer of a business. Ensuring that there are adequate financial resources to support the transition of the business and provide for the necessities of the beneficiaries and stakeholders.
- Helping with the development of a plan for continuing the enterprise after the owner’s departure, including setting goals, identifying appropriate potential successors, and developing a plan for transferring leadership and ownership. This transition plan also includes providing opportunities for the successor to learn and grow within the business, so they are prepared to take over when the time comes. This step is not legally required, but it could prevent legal action from dropped balls or regulatory mishaps.
Finally, though not necessarily a legal function, our lawyers will serve by encouraging open communication among family members and promoting transparency about the succession process to ensure everyone is on the same page and informed. In this context, an attorney can also create a process that can be called upon to resolve disputes that might arise. We cannot claim that succession planning is fun, but we can guarantee that the failure to have a plan in place when it is needed is miserable. In this context, failing to plan is definitely planning to fail.
Work with Experience
It’s essential to work with an attorney who is experienced in business succession planning to ensure that your plan is effective, comprehensive, and legally sound. Please do not hesitate to contact one of our experienced lawyers for legal advice. Call the trusted estate planning attorneys at Lowthorp Richards at (805) 981-8555 or fill out our online contact form. We operate primarily in the Tri-Counties area – Ventura, Santa Barbara, and San Luis Obispo.