Key Strategies to Defining Your Legacy through Family Succession Planning

Succession planning can be a complex and convoluted concept and process, and it gets even more complicated when you talk about “family succession planning.” Family succession planning is very similar to succession planning, as the name would indicate, but this time, you must decide when family members may work in the business, how profits are distributed, who may serve on the board, how to plan for future leadership, and other matters like taxes, liability, and estate planning. As everyone knows, things can go awry quickly when dealing closely with family, and emotions can get involved.

Succession planning is not a quick process, this will take years of planning, and we can’t count how many times that business owners have run out of time before they have a solid succession plan in place. If you are considering leaving your business or transitioning out, you need to begin planning now.

Succession planning options

Owners of family-owned businesses looking to exit a business have several options available and it all comes down to how you want to define your legacy and your wishes for the company or family as an owner.

In most cases, a transfer to a family is done for estate planning purposes. This option is extremely time-sensitive, as a highly favorable estate exemption threshold expires after December 31, 2025.

A transfer to management or a management buyout (MBO) is another attractive option, our specialists have seen a lot of MBOs. The company is purchased from existing owners by the company’s management team. An MBO is less complex since the new owners are already intimately familiar with the business.

Employee stock ownership plans are becoming popular again as interest rates are coming down. This strategy can preserve your legacy by transferring the company to people who are already invested in its success and understand its culture and values. It also offers several tax advantages.

The “last resort” in most cases for family businesses is a sale to a third-party company or private equity.

Any of these strategies can make sense from company to company, but it all depends on the wishes of the owners and the legacy that they want to leave behind.

Tough decisions and discussions around succession planning

Mixing business and family is not always easy, but succession planning should be discussed early and often so that opportunities are not missed and relationships are not ruined. Here are some of the key topics among succession planning conversations that we have seen with our clients:

• Be realistic about company valuation when transitioning to family
• Keep an open mind when discussing difficult topics
• Define key roles and responsibilities within the family
• Develop plans to keep teams accountable
• Decide whether you are really prepared to transfer control or not
• Assume that you are always running out of time. Plan now
• Take a leap of faith