Ensure the longevity and success of your business by creating a strategy to transfer ownership. Don’t let your hard work go to waste by failing to envision the company’s future without you at the helm. Follow the advice below to properly plan the estate of your family business before tragedy strikes.
What is estate planning for family businesses?
Estate planning for your family business is often misunderstood. It is thought of as a way for others to profit from your firm. However, that is not the case. Rather, you should look at it as a way of creating a lasting legacy.
It’s not just a means of avoiding estate taxes. Instead of starting with the perspective of tax avoidance, view it from the lens of being a culmination of a comprehensive, long-term planning process.
How do you set up an estate for your family business?
It all starts with a vision and a plan. Together, these are essential for successful estate planning. They ensure stability while providing guidance for future management roles.
By clearly naming who the future owners will be and then providing them with training as well as mentorship, you can ensure a smoother transition of ownership for everyone involved. Plus, those you advise will have greater clarity, meaning more informed decisions will be made. Everyone will understand their roles more clearly as well.
While choosing the right successor may lead to conflicts, addressing the issue openly and discussing it with family members is better than doing nothing. The alternative is leaving it unresolved, which could potentially lead to legal battles down the road.
How to set up an estate plan for your family business.
Let’s take a look at advice worth listening to when setting up an estate plan for your family business.
Choose an appropriate business structure
This can help you minimize your liability, reduce the taxes you owe, and make the transfer as seamless as possible. As your company evolves, you might consider transitioning from a sole proprietorship or partnership to a more formal structure. That might be as an LLC, an FLP, or a corporation.
Regardless, these structures offer significant benefits, namely limited liability. Choosing the right structure entails picking the option that aligns with your needs and your goals the most. This may require you to consult with a business lawyer and an accountant. They can help you make decisions as well as formalize everything properly.
Select a successor
Assess the skills, experience, and qualifications of the next generation of people who are already involved in your business. Don’t just favor specific family members because you like them more than others on a personal level. Prioritize what is best for the business when crafting your succession plan.
Establish standard operating procedures
Establish a structured process for making business-related decisions. Focus on procedures for day-to-day management and put conflict resolution into place. By being proactive about standard operating procedures, you can lower the chances of confusion and minimize the odds of frequent internal conflicts.
Write a mission and value statement
Establish your family values. Create a road map for the next generation that guides them for future decision-making processes. Make sure it aligns with your long-term vision for the company.
While tax planning is important, it should incorporate the needs and goals of both your family and the business. It’s crucial to build a decision-making system that encompasses nonfinancial objectives — one that is not solely focusing or fixating on tax goals.
Take a comprehensive approach by considering the financial, human, and enterprise capital within your company. Also, remember that effective leadership succession planning involves addressing critical roles beyond just the owners. Think about the directors, trustees, and forum leaders as well.
Your investment of time, money, and effort in your business deserves a thoughtful succession plan. It should engage the talents and enthusiasm of your entire family unit while also keeping the best interests of the business at the forefront.
By involving your family, you can ensure the long-term success of your company. However, it’s not always easy. That’s why working with a knowledgeable adviser, like Lang Allan & Company, who understands fiduciary responsibilities and business systems is ideal.
We can help you establish effective measures and assist you in the facilitation of matters that may be a lot to handle on your own.