Business Succession Attorneys in LouisvilleMost business owners know that one day they will need to pass on their pride and joy to someone, most likely their kids, but possibly an outside buyer or an employee. Change in ownership will fund the owner’s retirement as well as ensure perpetuity for the business enterprise. Unfortunately, many business owners do not take appropriate succession planning measures, which can harm their vision for the future.
Waiting until the Last Minute
Many business owners do not undertake succession planning until the eleventh hour, if they ever plan at all. An ideal succession plan, however, needs foundational work over many years. In fact, some specialists recommend planning your exit strategy from the day you initiate the enterprise. Your exit strategy for the future will determine how you structure and run your business at present.
Assumption that your Children will Take over the Family Business
Many children do want to take over the family business at some point, but not all do. Your kid perhaps really wants to be a doctor or schoolteacher or minister rather than a business owner. It is vital to discuss their future goals and aspirations with them.
Gently encourage them to work in the business without pressuring them. Putting too much pressure on is unfair to them and can spell disaster for your business if you try to push them into a role that they are not enthusiastic about. It is best to understand their wishes as soon as possible, so you can pursue other avenues, if required, such as selling to an outside buyer or a valued employee.
Equal Division of the Business among Heirs
If there is an equal partnership among heirs, it can be damaging to the business due to ineludible conflicts, different visions, and distinct skill sets. One child ultimately needs to manage the business. Thus, it is crucial to plan years ahead, to understand who among your kids has the skills and genuine interest to run the company.
If a child does not want to be a part of your business, you may want to figure a way out to leave the child assets that are unrelated to the business. These could include insurance or maybe non-voting shares in the company (although this can also cause conflicts).
Waiting too Long to Give Genuine Authority to the Heir
At times, business owners erroneously wait too long to give real authority and responsibility to a potential heir. Many owners do not relinquish control until the day they retire, only to come to the painful realization that their child is not appropriately trained for the task.
It is vital to include them in the decision-making process and allow them to take the reins. Enable them to build necessary relationships with employees, vendors, and clients. Allow them to make mistakes. Remember, when you started out, you made mistakes too.
Not Placing your Trust in Them
This ill-advised trait goes hand-in-hand with the inability to give your heir real authority. You certainly should not trust a person blindly simply because they’re family. But being so suspicious that you are constantly looking over their shoulder is not a good idea either. This type of suspicious behavior will engender an environment of distrust.
In fact, sometimes it can be beneficial for the family business if an heir works for someone else for some time. It can offer them valuable training and perspective on whether they ultimately want to be involved in the family enterprise.
Being Reticent about your Succession Plans
Often, business owners are secretive about their succession plans. They might be afraid of stirring up family disputes, or they simply do not like to talk about the family funds. Understand that doing so is detrimental to your heirs and potentially your business as well.
Informing your family about your succession plans in a timely manner will allow them to plan ahead for their future. It allows you to make modifications to the plan if required. Keep your potential heirs informed, perhaps through routine family meetings.
Not Planning for Your Retirement Years
For small business owners, retirement can be a challenging time as their business is typically the epicenter of their life, even their identity as a person is associated with their enterprise. The lack of clarity on what to do in retirement often leads them to drift back to the family business, usually interfering in its current operation. It goes without saying that doing so is harmful for the company and family ties.
Planning without Expert Help
The process of business succession planning is complex and fraught with challenges. An external expert can offer precious advice. Someone who can lead family meetings and resolve family disputes through their experience and objective viewpoint can be an invaluable asset in such situations.
Regardless of the option you take to transfer ownership, it is important to work with a business attorney to draft and handle legal issues, paperwork, and the meticulous implementation of the plan.
Legal counsel can help you understand the approach that is most suitable for your business succession needs. You could choose to sell your business share for cash and other assets. In such cases, a professional should guide you tax implications of this option.
You might decide to create a buy-sell agreement that becomes active under specific circumstances, such as retirement, death, divorce, or disability. Also, nuanced arrangements, such as a private annuity or grantor retained annuity trust, could create retirement income long-term and even offer support for a surviving partner.
Skilled Legal Counsel for an Effective Succession Plan
An experienced business succession planning lawyer at John H. Ruby & Associates in Kentucky can educate you on the common issues that family businesses face during these critical transitions. We provide our clients with valuable legal advice to allow them to navigate complex discussions with potential successors and resolve disputes that might occur among family members. Call today at (502) 895-2626 to schedule a consultation with a seasoned business attorney.