If you are one of the millions of Americans who own a family business, you have likely invested a considerable amount of time and money into your business. Whether because you retire or because of your death or incapacity, the time will come when you can no longer operate the business on a day-to-day basis. To ensure that your business continues to thrive, you need to plan for that day. With that in mind, the Long Island business succession planning attorneys at Eghrari Law Firm discuss business succession planning steps for the family business owner.
Why Is Business Succession Planning Necessary?
Although small, family-owned businesses declined in the United States during the latter half of the last century, they are booming once again. Over 80 million people, representing about 62 percent of the U.S. workforce, are employed by a family-owned business. Those businesses produce almost $6 trillion, or 64 percent of the U.S. gross domestic product (GDP). Despite the resurgence of family-owned businesses, the likelihood of one surviving for several generations remains low. The average life span of a family-owned business is 24 years with only about 40 percent of them successfully transitioning to a second generation. Sadly, only 13 percent make it a third generation and a dismal three percent last for four generations or more. One of the main reasons why family businesses fail to successfully transition to future generations is the lack of planning.
Family Business Succession Planning Steps
Even if you decide not to pass your business down to the next generation, business succession planning remains important to ensure that you and/or your family benefit from the success and value of the business you created. If you do plan to pass the business down, the following family business succession planning steps should be useful:
- Decide and define your goals. If you fail to decide what happens to your business if something happens to you, the odds of your business continuing to flourish are extremely low. Now is the time to make decisions and define your goals. Decide if your goal is to pass your business down to the next generation or sell it at some point. If you plan to step back and retire at some point, make that decision now as well.
- Choose a successor. Not only do you need to decide who you want to fill your shoes when you step back or after you are gone, but that person (or persons) needs to be willing and able to accept the role. Never assume that your children want to carry on the family business. Sit down and have a serious and open discussion about the prospect.
- Create the legal framework needed to achieve your goals. If your business is a sole proprietorship, now may be the time to consider other options. The legal structure you choose can impact things such as the ability to transfer ownership, the risk of loss to estate taxes, and how well your business is protected from threats such as creditors and economic downturns.
- Prepare your successor, family members, and business associates. Ideally, your successor should move into your position slowly to give him/her time to adjust and to give other family members and business associates time to get used to the idea of someone other than you running the business. The more time you spend preparing your successor the better the odds will be that he/she succeeds.
- Update your plan as needed. Once you have a family business succession plan in place, be sure to review it every few years and make immediate updates if something happens that dictates the need for an immediate change.
Contact Long Island Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about business succession planning steps for the family business owner, contact the Long Island elder law attorneys at Eghrari Law Firm by calling us at 631-265-0599 to schedule your appointment.
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