Obviously, unless you intend to sell your family business to a third party, choosing your successor is the initial step in the business succession process. In many instances, this will be an adult child or grandchild assume control of the business. If this is your natural inclination, then be sure to look before you leap.
A recent Kiplinger's Personal Finance article, titled "Retirement: plan to pass on a family business," encourages business owners who are considerings family members as successors to look at their qualities as managers and entrepreneurs.
Someone may be a good manager, Kiplinger says, but he or she may not have the ability to focus on the big picture or think strategically.
As soon as you have made your selection, start training that person to run the company. Ideally, this process should take three to five years, giving your successor time to earn the employees' respect and to be comfortable with all of the various parts of the business.
The next step should be to figure out how you will be compensated to start a stream of income for your retirement. After all, your business may be your largest asset and the primary "investment" you have made over your working years.
Against that backdrop, the original article advises business owners to review all of their assets and income sources during succession planning to determine how much money they will need from the business to live comfortably in retirement.
Another critical component of the business succession process is estate planning. Giving shares of stock in the enterprise is a common way to accomplish this, and it just happens to be a tax-efficient way to transfer the value of a company. Any amount above this counts against the estate-tax limits when you pass away.
If you have a little time on your side—such as a number of years to plan—you can may these gifts, trusts, or partnerships. These strategies allow you to move a large portion of the business to your successors without giving up control until you are ready. Read about this and more in the original article, then give your estate planning attorney a call to talk over your options.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Kiplinger's Personal Finance (July 4, 2014) "Retirement: plan to pass on a family business"