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Succession Planning for Family Businesses

04.22.22 written by


Family businesses make a huge impact on the economy in the United States.  Studies have shown that the number of family businesses owned by second generations and third generations dramatically decline for a number of reasons.  One large reason is the lack of business succession planning for the family business.

Business succession planning is a business owner’s development of a plan for determining when they will retire, what position in the company they will retain when they retire, who the eventual owners of the company will be, and under what rules those new owners will have to operate.  The normal progression of business succession planning is as follows:

  1. Develop goals to determine whether to sell the business to all children, the most qualified child, an employee, or an outside party for funds for retirement; or retain the business for children and also decide when to relinquish control of the business;
  2. Develop an advisory team of internal employees, your attorney, CPA, financial advisor and insurance agent;
  3. Have a financial valuation of the business prepared;
  4. Consider income tax, estate tax, gift tax, and income requirements to sustain current lifestyle if the business is sold and work on financial planning with sale of business proceeds;
  5. Consider various estate planning ideas which can reduce income tax and estate tax liabilities;
  6. If a sale is part of the process, determine the logistics of finding a buyer and how relationships will be affected if the business is sold or retained in the family;
  7. Include family members or key employees in the planning process, get their input, but retain the final decision making authority;
  8. Once a plan is developed, work with the attorney and CPA to determine the ultimate cash flow results of sale, and after negotiating the deal with the buyer, make sure the necessary legal documents are prepared and that the business owner understands them before executing them; and
  9. Follow through on the plan, monitor the plan, continue to review the business owner’s estate planning and financial needs, and develop tax planning ideas after retirement.

A business succession plan brings to light an individual’s mortality which is sometimes not the easiest thing to do as a result of the emotional issues involved in discussing retirement and death.  Business succession planning also involves reviewing relationships and making sometimes difficult decisions as to whom the eventual owners of the business will be.  The eventual owners of a business will usually come from an individual’s family, other owners, or other key employees of the business.  Therefore, a good business succession plan will involve not only the business owner but also the business owner’s family and key employees. Together they will be able to establish a plan with the business owner having the final decision as to how the plan will be executed.  Business owners who die without a succession plan risk the potential demise of their business.

Please consult your attorney or accountant to start the business succession planning process.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663
Phone:  (330) 364-3472
Fax:  (330) 602-3187