Even though your children may still be young or still in school, succession planning is a process that can take months or even years.
Margaret Snell, who specializes in family business succession planning at BDC Advisory Services , answers six common questions about how to start your preparation:
1. What measures should be taken?
Margaret Snell , who helps families develop their transition plans, says you should contact your bank and let them know you plan to transfer the business to your child or children through a sale or bequest.
She adds that you will also need to communicate with your lawyer and accountant to address tax and estate planning. You should also consider retaining the services of an advisor who can help you understand the ins and outs of succession planning.
Finally, set a date for your departure and make sure your children are able to take over.
2. How to start the conversation?
Pick a date and location that works for everyone. Be prepared for any eventuality when you ask your children if they want to take over the family business.
“It’s about sitting down and having the most difficult, open conversation of your life with your parents, but in a professional context,” says Margaret Snell .
Don’t make it personal. Transitioning a family business can dentist database bring out underlying conflicts . If you need it, seek help from a professional, such as a mediator or counselor. “Make sure the discussion happens in a neutral space to manage expectations and ease tensions,” Snell recommends.
To help parents let go, family counseling services may also be required. “It’s quite an emotional process because it’s their legacy, which they’ve spent decades building. It can take a long time to come to a decision that they’re completely comfortable with,” she says .
3. What if my children do not share my vision for the business or do not want to take over?
How will your children ensure the growth of the business after you are gone? What do they want and desire to achieve? Margaret Snell says it is possible that your business will take a completely different direction and you may not be comfortable with that decision. “It’s not just about continuing your father’s or mother’s vision, ” she says . “Recognize and support the goals your children have set for the business you have built.”
Your children may prefer a different career path, but they feel they need to take the reins of the business. Ask them this question and be prepared for the answer. According to Margaret Snell , sometimes a child doesn't really want to take over the family business, but does so anyway. The parents then have to take on a leadership role. Which means the parents won't really retire.
4. Don't offer discounts
Your sale price should reflect the fair market value of your business, even if you're selling it to your children. Snell stresses that you shouldn't offer a discount, since you'll usually need the funds for retirement. "The only difference is that you might want to ask for payments over several years instead of a lump sum."
5. Respect the new person in charge
You are no longer the leader of the company. “Ideally, if you have done your succession planning , you should step down completely,” says Margaret Snell . If you continue to be involved in the company’s operations, such as as president or chairman of the board, there is a risk of interference and you could prevent the company from growing under the new leadership. Your successor could redefine the role of CEO, and you will have to accept their decision.
6. Take care of the final steps of the transition
Your management team will need to work with the new person in charge of the business, but expect that many of them will retire at the same time as you. The human resources team should support your children during the transition. Encourage your child to take the necessary courses to prepare for the new management role. Does he or she need mentoring or job shadowing? “Upskilling your replacement, if needed, can add another year to the process,” says Margaret Snell .
Key takeaway: Succession of a family business takes time and planning.
