Fall is a time of transition. It’s a reminder of the importance of “succession planning” for closely held family businesses.
There are two ends of the business spectrum, but many small businesses fall in the middle. On one hand, some businesses can be passed on to future generations without a lot of trouble because they function without the owners’ daily attention. For example, if a family owns several McDonald’s franchises, those assets can be maintained indefinitely within trusts or business entities, allowing children and grandchildren of the original owners to benefit. On the other hand, some businesses are so dependent on personal dedication that it’s not likely the business will endure once the owners are gone. For example, we have a joke here at our firm that “the value of our firm is everyone showing up for work every day.” There is not much to pass on to our children in terms of “the firm.”
But many small businesses lie between these two ends of the spectrum. These family businesses have prospered over the years and have considerable “blue sky” and name recognition. There may be members of the younger generation who are poised to assume leadership roles. It’s best not to keep them in the dark too long!
Successful business owners should consider how to maintain the value of their hard work and pass it on. This can get complicated. Sometimes one or two children are interested in the business, and others are not. How do we value the business so the distribution is fair? If there are two families involved, does that structure continue? How do the owners maintain income levels after they depart? How do the new owners finance a purchase?
As you see the leaves turning, consider starting the process of business succession planning. Done properly, you will maintain value and provide for an orderly transfer during your lifetime instead of having your family deal with all the variables after you pass away.