Retire­ment is an excel­lent time for busi­ness own­ers to con­sider how to pro­tect their fam­ily busi­ness with a suc­ces­sion plan. Pass­ing the torch to a fam­ily mem­ber may or may not be the best plan. You should con­sult a reg­is­tered finan­cial plan­ner to learn spe­cific options for your busi­ness suc­ces­sion. A cer­ti­fied finan­cial plan­ner or licensed estate plan­ning attor­ney is an excel­lent advi­sor for cre­at­ing a suc­ces­sion plan. This arti­cle is not finan­cial advice, it merely points out some items to con­sider when dis­cussing suc­ces­sion plans with an offi­cial advisor.

A suc­ces­sion plan is essen­tial for a smooth trans­ac­tion that avoids fam­ily squab­bling over details and over who runs the com­pany. It’s wise to start plan­ning well before the prin­ci­pal owner wants to enter retire­ment. With­out a firm plan, the fam­ily run busi­ness could be in jeop­ardy. Com­pa­nies that have been highly suc­cess­ful can fall apart when the fam­ily gets into a fight over who will run the com­pany, because no plan is in place. This is why it’s best for the prin­ci­pal owner or own­ers to lay out the tran­si­tional plans in advance, and they should inform fam­ily mem­bers about those plans well before they retire or leave the business.

There have been cases where a founder retires and chil­dren take over the com­pany, but then the new own­ers digress from the pre­vi­ous suc­cess­ful prac­tices and change things like profit shar­ing for employ­ees. This can lead to company-wide dis­sat­is­fac­tion, loss of key employ­ees and other prob­lems that will ulti­mately affect the con­tin­ued suc­cess of this business.

Sug­ges­tions for con­tin­u­ing suc­cess in the fam­ily run busi­ness include the following:

1. Pro­tec­tion for the retir­ing owners
2. Tax min­i­miza­tion dur­ing and after the transition
3. Dis­tri­b­u­tion and/or equal­ity of shares of the com­pany that will be trans­ferred to fam­ily members
4. Appraisal value of the company
5. Vot­ing shares and rules for those that may wish to sell off their shares
6. Train­ing for the future lead­ers of the company
7. Appoint­ment of a board of direc­tors to help dur­ing and after the tran­si­tion away from cur­rent leaders
8. Options for con­tin­u­a­tion of the com­pany if no fam­ily mem­bers wish to stay involved

Just because a fam­ily run busi­ness is in good shape today doesn’t mean this busi­ness will con­tinue to thrive when cur­rent lead­er­ship changes. A plan for suc­ces­sion fol­low­ing owner retire­ment should be devel­oped about ten years in advance of leav­ing the com­pany. This will help the com­pany con­tinue a path of suc­cess despite any tur­bu­lence that may occur due to change of man­age­ment within the fam­ily.

A suc­ces­sion plan is peace of mind for those who orig­i­nated the com­pany and invested years into mak­ing the fam­ily run busi­ness successful. Deciding who will take over is critical to the future success of the business.