Keeping The Business In The Family
Posted on Friday, December 01, 2017 Share
Many successful small companies are family owned and run. And, there's a good reason for it. It takes passion to make a go of it in business, and especially for a smaller one. A family owned business can benefit from the special dedication of a founder at the helm and possibly a spouse, siblings and children working alongside. But the devotion and dedication to the business also needs to apply to the succession plan for the company.
Outside Resources for Family-Owned Businesses
For smaller family-owned companies, it's sometimes difficult to get perspective on challenging business problems. Family members may find themselves of a like mind, and that's when an outsider's voice is useful. Fortunately, there are many resources available to family-owned businesses:
Look to Academia. Fortunately, many US colleges and universities offer useful advice for family-owned businesses for little to no cost through their family business institutes, centers and programs. The resources available at each college or university do differ. But how do you find one near you? Fambiz.com is a nonprofit organization hosted at Northeastern University's Center for Family Business, and it has an online list of the nation's academic institutions with resources for family owned businesses at http://www.fambiz.com/ed-affiliates.cfm
Tap into Government Resources. Don't forget the US Small Business Administration (SBA). The SBA is ready, willing and able to offer free advice and tools for small business owners. They are especially committed to providing resources to smaller family owned concerns. Whether it's local assistance in your area or online resources, make sure to check out the SBA at http://www.sba.gov/
Once you've worked to build it, it's important to make sure your legacy is protected. A swift and seamless transition in management is one of the things to consider well before you choose to step down from the helm of your company. But there's a critical question to ask yourself. Will family members be prepared to take the lead on the management team?
Here are some considerations when structuring a good succession plan for your family-owned business.
Recognize the Financial Value. A succession plan isn't just a strategic plan. It's also a wise investment. Without a skilled management team in place, a company can easily falter, especially in difficult economic times. When you're committed to getting family members to assume top leadership roles, understand that they can be a vital part in ensuring your business continues on for the long-term. If they're interested in seeing the company grow and last the test of time, that commitment is half of the battle.
Remember that many founders of small family-owned businesses continue to retain an investment in the company, even after they step down from the top spot. So, it pays to protect your investment and the investment for the rest of the family. Look to the most committed and qualified family members to lead your business and you'll be well positioned to make that happen.
Be Decisive. Make sure you're clear about the next step you'll take. You might consider gifting the company to your family or leaving the business to them as part of your estate.
Will you be setting up a trust and if so, what type? There are many ways to exit a company and pass it on to family. The direction you take certainly depends on the commitment of family members to the business, as well as the intention of the company owner.
Are you looking to sell your interest to your family flat out or over time, or would you sell the company to outsiders and keep the family in management? Outside investors are very likely to bring in their own management team and that can lead to family members feeling pushed out. If family members feel that they aren't invested in the business, financially and directly, there can certainly be discontent. It makes sense to give family members who are active in the business a chance at a stake in it, if possible.
If you're wondering about compensation for the various family members working at the company, make sure to link it to the involvement in the business, rather than the family relationship.
Get Buy-In. If you're determined to keep the business in the hands and control of the family, there's a real need to groom the next set of leaders well in advance of stepping down from the company.
Obviously, there's a big difference between having family members work alongside you -- and getting them prepared to make difficult decisions as the president and CEO of the business. Don't hire your siblings or children just because they're family. Sometimes it's wise to look outside of the family circle for a qualified leader to add to the team. Make sure you understand the commitment and skills of the family member looking to take over the leadership role. They need to be open to the grooming process and you need to commit to taking the time to make it work.
Minimize the Tax Burden. This is one area where knowledgeable CPAs and business and estate attorneys are needed. If you're looking to gift or sell your interest in the family business to a spouse, siblings or children, you need to understand the tax implications to you and your family. There are financial vehicles that can help to minimize the hit from gift and inheritance taxes. But when it comes to your financial investment, there are many ways to structure your exit from the company.
Posted in Tax And Accounting Topics For Business
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.