By ensuring an orderly transfer of ownership and management responsibility, a well-developed succession plan provides essentially the same benefit for a family business that a will does for family assets. Yet, according to the Society of Louisiana CPAs, thousands of small business owners who would not think of being without a will have given little or no thought to who will guide their business someday.

If seeing your business continue in the future is important to you, focus on succession planning. Succession planning guides the owner and family through each aspect of perpetuating a business after the owner has retired or passed away.

Some reluctance to address succession is natural, but a well-defined plan could spare you and your successors or heirs a great deal of time, money, and legal problems.

Defining Goals and Objectives

It is important that you develop a vision for the business. Unless you have a vision, you will not know what kind of leaders to identify and develop. Plan meetings with family members to discuss their goals, wishes, and concerns. Work to determine what will happen when you exit.

Basically, you have four choices: (1) you can keep both ownership and management control in the family; (2) you can retain family ownership but hire management from outside the family; (3) you can sell the business to an employee, competitor, or other outsider; or (4) you can simply close the company’s doors.

Determining a Successor

Perhaps, the single most difficult aspect of succession planning is identifying who will run the business when the current generation retires or passes on. Should the business be run by the eldest son who joined the business right out of high school or by the daughter who has an advanced business degree and experience working for other companies? What about the operations manager who is not related but has demonstrated his or her ability to run a business?

Grooming Successors

Grooming the upcoming generation is a key succession factor. There is nothing worse for your business than an ill-prepared leader. Many of the formal systems, such as written policies, procedures, and job descriptions, found in other larger companies may exist only in the owner’s head.

The goal is to transfer that knowledge to successors. Sometimes the best advice you can give your children is to get experience working outside family business.

Implementing the Plan

Once a succession plan is in place, the owner should communicate that plan to interested parties. Such communication gives family successors and/or key management a clear understanding of the path to the future, and allows them to begin setting goals and objectives.

Although the actual transfer of control to the new successor occurs when the business owner retires, the transition can be gradual by turning over more and more of the day-to-day responsibility to the successor. For example, the owner should begin introducing successors to the key customers, suppliers, bankers, attorneys, accountants, and other professional associates well in advance of the owner’s departure.

Consulting with a CPA

It is not usual to see the bulk of the owner’s assets tied up in a family business. This can result in a large estate tax bill, sometimes so large the family may be forced to sell the business to pay the taxes.

To prevent this outcome and allow more businesses to be passed down to the next generation intact, an additional tax exemption is available. “Qualified family-owned businesses” can receive an exemption over and above the amounts that may pass through the estate to a non-spouse free of federal estate tax. (During 2002 and 2003, the regular per-decedent exemption is $1 million.) In certain cases, small businesses may qualify for a special, long-term estate tax installment payment plan if they meet requirements about who owns and works in the business.