Succession Planning for a Business
You own a family farm or a family business and you want it to continue on when you are no longer here. How do you set the process up for a smooth transition to the next generation? Succession Planning.
Succession planning is a comprehensive approach to plan for the transfer of a family business from one generation to the next. This includes looking at state and federal taxs, labor management, business organization and capitalization, family dynamics, financial management and enterprise management considerations.
Many families don’t know how to develop a plan or where to start. The result may be catastrophic if a farm or business passes by Will or Trust to heirs who don’t understand or want the farm or business. They may well sell the assets of the business or take the individual farm or business assets as a personal property distribution among the heirs.
If one or more heirs are involved in the business and rely on it as a primary income source, that heir may be forced to purchase the shares of other heirs to keep the business operating under her or his control. Incomplete or inadequate farm succession planning often results in heirs who are incapable of running the farm business,
The results are often a family conflict, prolonged legal battles, and partition of family-owned and operated farm or business assets to satisfy heirs who want to “cash in” their share of the business rather than invest in it.
This is further complicated if the owner of the family farm or business lives in a home that is on the same property. Often the farm or business is the largest asset in the estate.
Succession, in any family business, is a process rather than an event. The sooner you start the process, the better your chances of success.
In some cases, business owners give thought to a succession plan, but they put off implementation. In such a case, serious problems arise if the owner leaves the business prematurely due to death or illness. Your successor will be making his or her first key business decisions during a difficult time and the health of the business could suffer.
General comments about family farm businesses
As an owner of a farming business, chances are you’ve worked hard to build your business and you want your business to continue to thrive after you retire, whether your children succeed you or you sell your business to others. As well, chances are that your farm is your biggest asset, so doing all you can to maximize the value of it when you do exit from it is vitally important to your financial future.
Planning to ensure your family business’s success
As a family farm owner you are probably quite busy. Indeed, at times you may feel there are barely enough hours in the day to keep up with the day-to-day pressures of family and business, and long-term planning can seem like a luxury you just don’t have time for. But, as an experienced businessperson, you also know that without proper planning, businesses (and families) don’t flourish.
This bulletin is intended to help you start thinking more about a number of issues you should consider to plan for your financial future and for your business’ future. The first half of this bulletin focuses mainly on succession planning for your business, as well as some business planning strategies you should consider. The second half of this bulletin focuses on retirement planning in general, estate planning and the need to coordinate these plans with your succession plan.