The ability of a business to transfer ownership to the next generation is a challenge faced by aging business owners. It's imperative to have a conversation about family business succession planning long before you plan to retire. Do your research before talking with your heirs. Here are some questions to ask yourself:
- Do your children want to inherit your business? Perhaps they've seen how hard you work, and don't want the responsibility. Is there another family member who can carry on after you're gone? Should you add a son or daughter as a co-owner prior to your retirement?
- Do you want your children to continue the business? Maybe they aren't equipped to carry your business into the future. Statistics show that most family-owned businesses die in the third generation of ownership, due to mismanagement and lack of the drive to succeed.
- Have you considered a buy-sell agreement? This is especially important in the case of your untimely demise. Sometimes called a 'business will,' a buy-sell agreement is a legally binding contract between co-owners of a business. If one dies or chooses to leave the business, the buy-sell agreement stipulates what price will be paid for the partner's interest.
- What about key-man life insurance? How will your heirs handle paying off any business debt? The payout can also be used to buy out your spouse, who may not want to continue working in the business after you're gone.
The Malaysian Insider recently published an article citing five main challenges to succession planning: transfer of family assets, ownership and management design, grooming succession, succession planning, and comprising a succession culture.
Business succession planning involves many decisions that can impact your family and the future of your business. It's crucial to consult an attorney who specializes in succession planning.
Contact us or call us at (888) 910-6652. Our Torrance business succession attorneys are professional, knowledgeable, and we guarantee our work.