For a business owner, there are essentially just two options when determining how that business fits into the estate plan. The first is to sell the business and leave the money to the heirs. The second is to create a business succession plan to leave that company to their heirs directly, allowing them to run it.
Assuming that the heirs even want the business — many have no interest in taking over a parent’s commercial venture — creating the right succession plan is critical. A sloppy plan — or worse, having almost no plan at all — makes it difficult for the business to thrive. This is why most family businesses fail by the second generation.
So how do you actually create a plan that works? Here are a few tips to keep in mind:
Don’t put it off — start as early as you can
The more time you have to plan and work with your heirs, the better. Ideally, you’ll create your succession plan, talk to them about it, and then bring them into the company to train and learn before leaving them the business.
Consider the best roles for everyone
When you have more than one heir, you need to decide what the best roles are. They don’t have to be equal owners or have the same ownership percentage. In fact, you may not even want one heir to be involved at all, or you may pick just one child who is suited to running the company. Make the right choice, even if it’s stressful to do so.
Talk with your heirs and be flexible
You may have a vision or an idea of what you hope to accomplish, but you need to discuss that with your heirs. Find out what they want and how they see things. Take their insights seriously. Be flexible with your plan and be willing to adapt it to make it work for them, not just for you.
Creating your plan
If you’re ready to make that business succession plan, start considering all of the steps you’ll need to take. This is a long-term process, and giving it the time it deserves helps make sure that you get it right.