A family business can provide income to support everyone in one’s household. It can also create a meaningful family legacy. Frequently, one or more children in the family may go into the same line of work as their parents when there is a family business to run. They may rely on that company for their income.
Anyone who owns and operates a successful business may want to create a succession plan. Succession plans identify people who can take over key positions when current owners or executives leave the company due to retirement, medical emergencies or death.
Those trying to arrange for the indefinite continuity of a family business may need assistance ensuring that they don’t make common mistakes while establishing their succession plans. What issues are common?
Leaving room for claims of favoritism
In scenarios where there are multiple hardworking, educated and experienced professionals who could assume a leadership role, simply selecting a family member for that position can lead to claims of nepotism. Business leaders intending to name a child or grandchild as their successor or limiting the pool of successors to direct family members may need to create clear records regarding job performance and other credentials to show that the parties they named deserve the opportunity.
Failing to communicate
Sometimes, many people within the organization have unspoken expectations regarding the future of the business and their role within the company. Current executives and owners generally need to take proactive steps to ensure that everyone is aware of who they have selected as successor candidates.
They may also need to discuss what may happen with ownership of the company after their retirement or passing so that there are fewer opportunities for conflict when they step down from their position.
Not planning for contingencies
The person selected as the ideal successor may not be available to assume that position when the time comes. Occasionally, they may even choose to decline the opportunity, possibly because they have another lucrative opportunity available to them or because they hope to retire early due to their personal success.
Succession planning for a family business can be as important as integrating an ownership interest into an estate plan. Leaders running family businesses often need help establishing a succession plan, arranging for a transfer of ownership and limiting opportunities for conflict when they leave their position. Consulting with an attorney familiar with business matters and estate planning can be beneficial for those concerned about the future prospects of a family business.