While choosing a successor isn’t something that needs to happen immediately upon starting a small business, small business owners need to start planning for succession as soon as their business is off the ground enough that it can be reasonably assumed to have some sort of future. In case of death, relinquishing of responsibilities, or simply retirement, a concrete plan should be put in place – despite many small business owners being reluctant to approach this delicate topic.
A big question many small business owners may encounter is to what degree they wish to keep their family involved. Some choose to sell their businesses outright, while others pass ownership onto family members and children. Some even choose to keep the ownership in the family but pass off management to another party, so that their family can continue to take advantage of the wealth that your investment created.
No matter how valuable the idea of creating a legacy of inheritance for your children is, it comes with certain challenges. Your intended “heirs” may be unqualified to run your business, non-committed, or simply disinterested. Passing your business along to your children is only a viable option if both you and your children are certain that they will not run it into the ground.
Not only important to succession is choosing an heir or successor, but also creating an effective succession plan. The goal of a succession plan is creating a smooth process by which the ownership and management change hands. It is important to plan for the unexpected equally along with the expected – if you should be forced to retire tomorrow with no plan in place, the business would be put into a chaotic and potentially expensive.
Remember, succession is a process, not a finite moment in time. That being said, it’s okay, and even good, to have an idea of when you wish to hand over the reins to someone else. You may choose to plan for a gradual tapering-off of ownership responsibilities as you place more and more trust in your intended successor. Or you may have a certain time in mind where you’d like to be completely done- for example, a retirement age. Preparing your successor for this eventuality is crucial, and offering some sense of timing, no matter how loose, will be very helpful to them.
The actual succession plan is complex and multifaceted, and it is best to hire a small business lawyer or estate planning consultant to help in this process. You’ll have to not only identify the strategies for the business going out in the future, but also selection of your heir and their training. Estate planning can be tricky, and without legal consultation, you could be looking at a very costly transition. Also, because the intersection of money and family can be complicated, clearly identifying your vision for the company and its profits in the future will guide your family in respecting the legacy that you set out to create for them.