As businesses flourish, owners may find themselves swamped under an increasing workload. If your growing business remains a solo operation, you may soon juggle more tasks than feasible within your working day. Many small business owners instinctively turn to family involvement for assistance when this turning point arrives.
Treading the Path with Caution
Involving your family in the business is not a decision to be made on a whim. This venture requires the same level of professionalism and seriousness as any other business commitment. The key to fruitful collaboration lies in methodical planning and open dialogue.
Ask your family and key advisors the following:
- Are your family members willing and interested in the business?
- What are their talents, interests, and areas of expertise?
- What roles can they fulfill within the company?
- How will they be compensated for their efforts?
- How well do they work together as a team?
- Who possesses the skills and aptitude to succeed you?
- What will be the ownership stakes for involved and uninvolved family members?
Addressing these questions can provide a comprehensive overview of the feasibility and benefits of involving your family in the business.
Crafting a Strategic Succession Plan
After confirming that your family members are interested and equipped to contribute to the business, the next step is formulating a succession plan. This strategy will detail the procedure for transferring or selling business assets. Factors to consider include:
- Your age
- Health
- The ages and skills of your spouse and children
- Your business’s predicted growth trajectory
A funded buy-sell agreement should be an integral part of your succession plan. This legally binding contract ensures that family members or other parties are obliged to purchase your business share at a predetermined price in case of your demise or disability. If such an agreement remains unfunded, family members or the company might lack the necessary finances or borrowing ability to buy your share, potentially risking the business’s survival.
Another viable option is gifting shares to family members. With careful planning, you could utilize your annual gift tax exclusion and your lifetime applicable exclusion amount to minimize gift and estate taxes.
A robust succession plan should encompass a detailed business plan outlining short, medium, and long-term objectives. This plan must be based on pragmatic budgets and financial forecasts, evaluated against actual results consistently, and adjusted according to varying conditions.
Enlisting External Insight
Business advisors and non-family members can be invaluable assets in your business growth. Their unique perspectives and impartiality can provide fresh insights, stimulate innovative ideas, and mediate family disputes regarding the business.
Securing Your Legacy
A well-thought-out succession plan acts as a catalyst for the successful growth of your family business. With the guidance of experienced financial professionals like those at Legacy Private Trust Company, you can develop a plan that aligns with your aspirations. Legacy can provide invaluable assistance in navigating the complexities of family involvement in your business. Their support can aid in business expansion and offer a strategic roadmap for ensuring continuity, thereby preserving the legacy you’ve diligently crafted.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
