Succession Planning: Now is the Time
October 18, 2011
By Dana Wattay, CPA Having a plan in position to replace retiring or transitioning talent is one of the most important things a business can do to ensure the continued prosperity and growth of the organization, yet succession planning is often one of the most neglected tasks. Succession planning involves reviewing job requirements and skills of current employees and actively seeking to fill the spaces between needs and skills with targeted training and growth activities, and constructing a plan of action detailing how and when to phase out the transitioning employees. This activity is vital regardless of the size or nature of your business. One type of business that can be particularly impacted by not proactively planning for a transition of ownership is the family owned small business. According to the Small Business Administration, out of the 90% of businesses in the U.S. that are family owned, only about 30% survive the conversion to a second generation of leadership, with only 15% lasting until the third year. Dedicating time and resources to establishing a succession plan with goals and timelines can help prevent your business from becoming a statistic. Some helpful tips for succession planning within a family owned business include: • Identify a successor. The best successor may not always be a family member. Consider the importance of keeping a business prospering after the current owner has transitioned vs. keeping the business within the family. • Provide adequate training. Establish a mentoring program within your organization to properly prepare the successor for the role he/she will be stepping into. Identify gaps in knowledge and assure that sufficient education is provided to fill those gaps. • Share the business plan. Having a transparent business plan is essential during the transfer of power. The successor must have a solid understanding of where the business is going and how it's intended to get there. Involving the successor in the evolution of the business plan during the educational period will help create a feeling of ownership in the company. • Plan early. The earlier a succession plan is created, the smoother the transition will be when the time arrives to implement it. • Set a timeline. Whether it's going to be a specific retirement date or a gradual decrease in involvement in the company, a clear timeline of exactly how the new owner will start acquiring control should be established. This will assure that everyone's expectations are the same. One of the largest factors, beyond finding the right person(s) to transfer the business to, is for all parties to understand the financial implications of the transfer of ownership. For example, accurate valuations and proper tax planning will be imperative to assure that the successors won't be affected by gift taxes and other financial burdens that they may not be able to absorb. Financial planning will also be needed to make certain that the benefits for the departing owners are outlined in detail, ensuring they will be taken care of in a way that meets their wishes. Faw Casson is an expert in succession planning. Please contact us at either office to schedule an appointment if you are a business owner who does not have a well considered succession plan in place. Our trusted advisors have assisted many of our clients with this delicate transition, assuring that their business's legacy will be preserved for generations to come. DID YOU KNOW? For the years ended December 31, 2011 and 2012 the Federal Gift Exemption is $5,000,000 ($10,000,000 for married couples). Previously it was set at $1,000,000. This is an opportunity for a family owned business to be able to gift these amounts as part of the succession plan.