Business Succession Considerations

Do you have a family business? Chances are it is a major (if not the major) asset in your estate. If yes, then it is like the goose that keeps laying eggs of gold for your family. So, do you have a plan to keep the “goose” alive after you are no longer caring for it?

Here are a few practical considerations for you to think through when developing your business succession strategy.

Family First?

If you are married, is your spouse actively involved in the day to day operations of your business? If yes, then does your spouse want to continue running it without you? An affirmative answer to these two questions would seem to resolve the business succession at least in the short term. Then again, do you and your spouse ever travel together? Cars do crash and airplanes do fall.

If your spouse is not active in your business or does not want to be active without you, then do you have any other family members who are involved … and could run it? Be honest now. Just because a family member works in the business does not mean he or she could run the business.

Key Employees?

If your spouse and other family members are not realistic successors when it comes to continuing your business, what about those who already run the business when you are away for business travel or pleasure travel? This key employee (or these key employees) may be an ideal purchaser when you are ready to make the transition. If you trust them, other employees respect them and critical customers, suppliers and vendors like them, then what are you waiting for?

Friendly Competitors?

On the other hand, maybe there is no one in the family or “in-house” who could assume the reigns and keep the golden eggs coming. Have you ever thought about approaching one of your friendly competitors? If the relationship is “friendly,” then such a competitor may be very keen to purchase your customer relationships, equipment, know-how and goodwill in the marketplace.

Arrangements could be negotiated to keep your own people in place and employed, too. Be prepared, however, for the new owner to require that you stay on for period of time to ensure a smooth transition. This could range from months to years. When you put yourself in the new buyer’s shoes, it only makes sense and most likely benefits all parties in the long run.

Shut It Down?

I know this would seem to be a strange consideration in the context of “business succession,” but it can be a very prudent option. With no spouse, family member or friendly competitor realistically available, this may be the best approach for all concerned. Why? It would be far better for you to close down your business on your own terms and timing than to have it crash and burn without you. For example, you can sell equipment, furnishings, buildings, customer lists and other tangible and intangible business assets for much better prices than forced fire sale prices would bring.

Protect the Golden Eggs.

Whatever strategy you elect for the future of your business, do not forget to make proper estate plans. Unless you carefully plan for the smooth transition of your accumulated wealth, then you may unwittingly make the IRS one of the biggest beneficiaries of your hard-earned golden eggs!

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