5 Tips For Family Business Succession Planning

Creating a succession plan now can help align family interests, manage family member expectations, reduce or eliminate estate and inheritance taxes, and ensure a successful transition to the next generation.

Follow these five steps to a successful succession plan:
1.Establish Goals and Objectives

Start by creating a collective vision of your business goals and objectives. What involvement should family members have in the future leadership and ownership of the company? Will you hire leaders from outside the family?

As a family, discuss the following:
•Who wants to keep their current equity?
•Who wants to cash out?
•What are the expectations and needs for future income from the business?

Once you know what everyone would like to do, professional advisers can help you figure out how to reach your goals via estate and inheritance planning.
2.Evaluate and Select Successors

Write a description of what each family member does. Identify the skills required to do the job, and list any important relationships family members maintain.

Discuss and assess each potential successor against their skill list, and identify successors for each leadership position. Talk with the successors you choose about their future goals.

If a successor plans an early retirement, or doesn’t have the desire to take on a leadership role in the business, it’s unlikely they’ll acquire the knowledge and skills they’ll need to perform the role. Move on to another candidate.
3.Share Succession Plan

Share the succession plan with all family members. Have an honest discussion with each successor about your perception of their strengths and development opportunities. Create a plan to help successors acquire the knowledge, skills or experience they currently lack.

An executive coach can help a successor develop their skills and provide a source of honest, objective feedback from someone outside the family. Finally, decide how to begin to transition personal relationships from an outgoing family member to a new leader.
4.Update Family Estate Plans

Seek estate planning help to minimize taxes, transfer ownership, buy or sell interest in the company and to pass on company ownership to family members. Your plan might include gifting company shares to family members, establishing trusts or providing employees a chance to purchase equity through an employee stock ownership plan.
5.Implement the Plan

It might take several years to implement both the people and financial aspects of your succession plan. That’s OK, as long as you have a timeline for the transition, and you’re prepared to accelerate the plan if a family owner becomes ill.