According to Industrial Distribution's 63rd Annual Survey of Distributor Operations, 69% of the companies surveyed are family owned, yet over a third (38%) do not have a succession plan in place.
There are many steps to consider when planning who will inherit and run your business, and it is advisable not to wait until you decide to retire to begin, writes Rocco Beatrice, estate planning and trust expert and EZineArticles.com Expert Author.
He lists three important steps to succession planning:
STEP ONE: TIMELINE
Put together a timeline for when you would like to hand over the business. You should have a rough estimate of when you would like to start delegating authority to others that work for you, and when you would like the process to be complete so that you may retire at a reasonable age.
STEP TWO: CHOOSE AN APPROPRIATE INDIVIDUAL OR GROUP TO RUN THE BUSINESS
Decide whether this will be a member, or several, of the family and what role they will have within the organization. If you don’t have family who want to go into the business, choose the succession option that you want for your business if something were to happen to you.
STEP THREE: TRANSITIONING THE OWNERSHIP OF BUSINESS
Dr. Bart Basi of the Center for Financial, Legal & Tax Planning Inc., a well-known and respected consultant on taxation, business valuation and retirement and estate planning, states that there are four major options in planning an exit strategy: Selling or gifting the business to remaining family members; selling to key employees; selling to a competitor; or selling to an investor group.
Each method has its pros and cons, of course, but it is imperative that you, as the owner, make that decision and not let it be made for you as part of your estate.
In his article for Industrial Distribution, Basi discusses the importance of succession planning and how failing to implement a business succession plan means putting the long-term survival of your company at risk.
Gifting stock to children who will run your business is one way to transition your company to the next generation. Gary Pittsford, CFP, and president/CEO of Castle Financial Group Inc. has written a couple of excellent articles on Gifting Stock as a Succession Plan for Industrial Distribution.
If you are planning to sell your company to key employees, Jonathan Skelly, an investment banker with PCE Investment Banker of Orlando, Fla, details the operational advantages of setting up an ESOP - Employee Stock Ownership Plan.
Many business failures can be attributed to a lack of succession planning - so take the time to have a plan in place to protect the business you've worked hard to make a success.