As a bookkeeper I have learned the importance for family business succession planning. It doesn’t just mean here is a will and throw some names on it, you need to protect your business with proper professional advice.
Even if it is a “one man show” you need to seek professional advice and consider it one of the expenses of growing a business.
You need to have contingency plans as well as being able to wear all the hats. If your business is successful and is supporting you and many family members, then what happens if you get very ill or die?
Is there anyone that can fill your shoes? Is there anyone in this company with authority to write cheques and basically keep the place running?
It can be hard to let go of the reins, especially if you built this company yourself from the ground up. But for it to succeed even after you are gone or if you simply want to retire you need to have procedures in place before a crisis happens and trust someone.
Just like you may have all your credit lines set up and your suppliers on speed dial you need to have the admin side of things organized to.
If you are employing family members now, then it is the perfect time to get them involved in everything. You have to trust someone in order for your business to flourish and grow, otherwise if you drop dead tomorrow it will die with you, or worse be left hanging and tying up money and debt, especially if it is a corporation. There has to be someone named to continue on.
I do the bookkeeping for my sister’s electrical contracting business. She was heading out on holiday and was going to have me come in more often and keep the money part rolling along smoothly. She signed a few cheques a head of time and I thought, well that is great for now, but what if something happens to her? She employs 4 people who rely on this business for income.
So, I convinced her to call her lawyer before she left, and papers were drawn up to the effect that I would run or sell this business in the event of illness, injury or death. I then went to the bank with her and my name was added as a “signing authority” My sister has always trusted me, but found it hard to open that side up to anyone. She had run the company from when it was just her and a tool box, so to now have others involved was difficult for her, but the lawyer convinced her otherwise.
He said, when your company gets big enough to employ family members and others then you need to have directions in place so that the company can make a smooth transition to the family members or a trusted assistant.
You Have to Trust Someone with your Baby
No different than leaving guardianship for your kids and insurance. Many people will have guardianship and life insurance in place for their personal lives but not for their growing business.
It can cause all kinds of headaches if you suddenly die or become incapacitated and your business was running full tilt and supporting others.
So, if you want this company to keep running after you are gone, or even when you retire. You need to trust them.
Hold a Family Meeting
Have a meeting and discuss this. No one likes to talk about the “what ifs” but things happen. Discuss openly with your employees or family members, as to which one would be best with the costing and sales, and wh
o would be better with the banking. Since I do the bookkeeping it was decided and agreed upon that I would help with that.
There were no secrets; we all discussed our roles in this tiny company. My daughter works there too as well as her daughter, and they both said they just want to be electricians, so another family member was better at the sales.
It was also discussed as to how the succession of the business would happen. Whose name or names would be on it for example?
Setup an Appointment with the Lawyer and the Bank
After you have had this discussion with your family and know how they feel and who is willing to do what and when, then you have a plan to show your lawyer and he or she can then put this plan in place as well as give you advice.
By having a discussion with the family first will take away the horrendous surprises, such as deciding on what will happen without discussion and causing resentment at a time of grief (if you died)
Also by openly discussing the “what ifs” your lawyer bill will not be as high as there will not be hours of trying to figure things out and how to put them into play.
Go and see your lawyer with a plan of action and get it done legally, then head to the bank with a trusted person to have their name added to the business bank account so that the business can continue running in the event of your death or illness or simply being away longer than you planned. I can now sign the pay cheques if she is not in town.
If everything is running smoothly and you wish to retire, then you can have another meeting and discuss transitioning the business to them and then talk about taking a dividend or staying on as a retired consultant (this is the most common way).
Most people do not want to give up a life-long family business, but will stay on as a consultant but the day to day routine will now be run by them.
If you find all this confusing, talk to your family, make sure they still want to be involved in this business then get to a lawyer and get all the “legals” drawn up.
Family business succession planning is just as important as life insurance and a will in your personal life, this needs to be in place or you can risk having your business die with you and leaving your family out in the cold without a job.
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