A Succession Plan for a Family-Owned Business

If you own a family business, you should plan for succession not only if you're close to retirement but also to protect against an early death, perhaps from an accident. To transfer a family business, you should create (1) a business strategic plan, (2) a family strategic plan, (3) a succession plan (including arranging for successor training and setting a retirement date), and (4) an estate plan.

Business strategic plan. A strategic plan for the business will allow each generation an opportunity to chart a course for the firm. Setting business goals will ensure that everyone has a clear picture of the company's future. This plan is long-term in nature and focuses on where you want the business to be at some future date.

Family strategic plan. A strategic plan for the family establishes policies for the family's role in the business. For example, it may include an entry and exit policy that outlines the criteria for working in the business. It should include the mission statement that spells out your family's values and basic policies for the business. The plan should consider which family members desire to have a part in management of the business versus those who desire a more passive role.

Succession plan. A succession plan will ease the founding or current generation's concerns about transferring the firm. It outlines how succession will occur and how to know when the successor is ready.

Estate plan. Without an estate plan, your estate will pay higher taxes than necessary, leaving less of the estate for your heirs. The estate plan should be used in conjunction with the succession plan to see that the family business is transferred in a tax effective manner.

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