There are few things more rewarding than building a family-owned business. Here in Pennsylvania, many hardworking people create businesses that employ members of their immediate and extended families. Whether a restaurant, hardware store, professional office, or light industry, family-owned businesses have the advantage of providing employment for people you know, love, and trust. Nevertheless, things may be running smoothly while you are in charge, but what happens if you die or become incapacitated? Which family members will run the business in your absence?
Why Have a Succession Plan?
Few people like to consider their own mortality. It is an unpleasant subject that can trigger an emotional response. Nevertheless, if you run a family-owned business, then you will have to consider a time where you may not be able to lead things. You not only have your own position to consider, but the jobs and livelihoods of your relatives as well.
If you don’t have a succession plan, this can be a recipe for disaster. If you have one or more children involved in your family-owned business, you could end up dividing the family as each child fights over the right to run things. You may also create a situation where none of your relatives is as emotionally invested in the business as you, so they all agree to sell the business at a price far below its fair market value. The business may also suffer with you gone if you did not groom a successor to run the business in your absence. You will need to craft a succession plan with an experienced Pennsylvania business attorney in order to avoid these pitfalls.
What Should be Addressed in Succession Planning?
There are a number of different items that will need to be addressed if you are to have a successful business succession plan. Keep in mind that every business is different, just as every family is unique. You may have your own goals and internal dynamics, so no one strategy is right for all family-owned businesses.
The first step is to identify your personal goals. Do you plan to retire or are you looking to run the business until you are no longer capable to do so? If it is the former, then you need to set a time when you will step down. Conversely, for those looking to continue running the business, then you need to set down certain events that will trigger the succession plan.
Once you have identified the triggering events for a succession, you need to identify your potential successors. This entails figuring out which family members have shown the best leadership qualities, while also being honest about ones who have shown little appetite or aptitude for management. Will you have one successor or do you prefer leaving management up to a team? Do you have non-family members in the business that you trust to run things more than your family members? These are questions you will need to answer. One solution might be to create a corporate structure approach, putting different family members in unique positions of authority, like making one in charge of finance and accounting, another heading operations, and one that will act like a CEO.
Your succession plan will also have to address aspects of federal and Pennsylvania state law. For one thing, if you retire or leave the business, who will get your shares? This will have estate and gift tax implications. Also, the structure of your business entity can affect things as well, with a corporation having a more formalized structure, while an LLC or partnership delivering greater flexibility in creating and implementing your succession plan.
When Should a Succession Plan Be Implemented?
Even though many parts of a succession plan do not come into play until you have left the business, the fact is that successful succession planning requires that it begin as soon as possible. Once you have identified your personal goals and successors, you need to make clear to all of the family members how your succession plan will work. You will need to tell your relatives who will be running the different aspects of your family-owned business so that there are no hard feelings or disputes that could disrupt the continued success of the business. It will also be necessary for you to begin grooming your successors so that they are ready to step into your shoes on day one. There may be things about your business that are only known to you, which your successors will need to know as well.
If You Have a Family-Owned Business, Our Business Law Team Can Help You Craft an Optimal Succession Plan
Succession planning for family-owned businesses is not something to be taken lightly. The experienced Pittsburgh business law attorneys at Jones Gregg Creehan & Gerace, LLP can help you create a succession plan that will address all of the unique aspects and needs of your family-owned business. Contact us today.