Where do you see yourself in five years? Most people who have ever conducted an interview have asked this stock question of a candidate at one time or another. We expect professionals to have a life plan complete with milestones by which they can measure their success. Likewise, an effective five-year business plan is critical to managing a company and communicating with the company’s stakeholders. Yet one element crucial to an effective blueprint for a company’s success is often missing. What is your succession plan? For those who are counting on an internal succession, consider the following pitfalls if a well thought out plan isn’t established.
In order to ensure that the business continues to succeed upon an internal succession, a small business owner should consider and address these critical issues (among others) as a part of their planning process:
Long-range financial planning and the legalities of succession are complex issues that require strategic thinking and professional advice if the transition is to be successful.
Pitfalls fill the pathway to a strong succession plan and the process should never be undertaken lightly. Business owners should establish transitional succession with legally binding documents to protect the family and the business. This should define the methodology of the future decision-making process with appropriate authority and controls in place, as well as a dispute resolution method.
The plan must also address all taxation implications to the owner and the business relating to the sale or transfer of ownership, the owner’s death or divorce. If the family will retain the business, professionals should review the estate plan to minimize taxes and avoid delays in transfer of ownership to the heirs. If it is to be sold, professionals should create a sales agreement that will be fair and equitable to buyers and sellers, accurately reflecting the value of the business and minimizing tax consequences of the transition.
It's imperative that all concerned family members and other stakeholders, including designated advisers, are familiar with the plan to ensure all processes occur exactly as outlined. Professional assistance is critical to the effective creation of a strong plan of succession, which must then be legally documented to ensure the full protection of the courts.
Many family businesses will not survive a transition, but you can maximize your family’s opportunities for success by engaging the best professional team available to you. Few business owners will have the knowledge and skills necessary to create and implement such a complex set of documents. The process requires a thorough knowledge of all of the key players and their skill sets, the business itself and the skills required to manage it effectively, the tax code as it applies to the transition and the legal knowledge to create fair and binding documents.
This is a team effort that requires the cooperation of all involved parties and the expertise of outside professionals qualified to develop a realistic plan that satisfies your goals and objectives. If you are ready to ensure you maintain control, exit on your terms, and preserve your family’s wealth, then start today by selecting your internal and external team.
The team at Smolin is a large assembly of multi-disciplined professionals who have been helping business owners protect, grow and monetize their business interests for more than 65 years. Our partners, managers and directors have wide array of experiences and expertise and have a developed a specialized group dedicated to succession planning and implementation. When you engage the services of Smolin, you tap into the knowledge and experience of some of the finest planners in New Jersey. When you want the best in the field, you want Smolin.