To do this, you need a sound succession plan in place that will guide the future of your business if you decide you no longer want to run it—or in the event that you pass away or become incapacitated.
Most business owners and entrepreneurs want to pass the family business down to children or grandchildren, if such an option exists. With this in mind, the following are some tips to help you create an effective business succession plan:
Begin planning early
If possible, you should begin your succession planning at least five years before you foresee yourself leaving the company. Obviously, you cannot anticipate a death or incapacitation, but if you foresee yourself departing for other ventures or retiring, then it’s best to get a head start on planning.
If you are still in the early phases of planning your business as a whole, it does not hurt to incorporate your exit strategy into your plan. Having your plan laid out in advance can give family members and employees a clear picture of what to expect should the day come when you decide to step away. This can also help you avoid unnecessary stress and hard feelings down the road.
Choose the most qualified successor
You need to be realistic about who is the most qualified person to run your business. If you have multiple children, for example, the fairest choice is not necessarily the oldest child or to split ownership equally among them. You need to choose someone you believe is best suited to follow in your footsteps and guide the company moving forward.
Keep in mind that approximately 70 percent of family businesses fail after being taken over by a child. You must appropriately train your successor or have them work in multiple areas of your company before you even consider passing on the business to them. Otherwise, the best decision might be to look outside of the family and go with a more qualified employee or partner.
Keep your family involved
Even if you are considering looking outside of the family for your successor, it’s important to keep the family notified. You do not want your loved ones to be blindsided by your decision should you suddenly pass away.
Remember, you can always amend your exit plan and succession decisions based on changing circumstances, but having a good plan in place will provide you with a great deal of peace of mind. Work with a skilled business law attorney for more information and guidance on drafting a sound succession plan for your company.
Steven K. Hardy is Chair of the BoltNagi Corporate, Tax and Estate Planning Practice Group. BoltNagi is a well-respected, established business and corporate law firm serving a wide range of individuals and organizations throughout the U.S. Virgin Islands.