Transition Planning: Don't Wait Until Too Late
Posted 9-11-2009 | By Jim Redpath | Download Article
As seen in Minnesota Business Experts' Forum
Business transition planning is all about setting things up so the owners long term ownership goals are satisfied. Successful business transitions take years or planning, evaluation and preparation; however, the rewards of planning drastically outweigh the ramifications of ignorance. Whether considering putting a family member, a top manager or an outsider in charge, sooner that later the will be a business transition-it's inevitable. Are you prepared? Ask yourself these questions:
- What are your goals relating to transitioning the business
- Does anyone else know your goals
- Do you have a plan to achieve these goals
- What happens to your business when you are not here
- Do family members really want to work and/or own the business
Below are a few recommendations to consider during business transition planning.
1. Develop or enhance your governance system. Governance is a system governing management and ownership to make sure they work together and take actions that support ownership goals now and in the future. Whether you choose a board, advisory board or executive committee, there are many governance options. Most systems will be different for an entrepreneur-owned, management owned or family owned business. The key to success is accountability, open communication and a clear understanding of business and ownership goals.
2. Assemble a strong management team. Hire the best management available and create a incentive-based annual compensation related to company and position goals. Long-term compensation should be used for retention and to help achieve ownership’s long-term goals If family members are part of your management team, make sure they want to be and have the right intentions. Placing family member in a management role with possible succession responsibilities should not be expected, it should be earned. As with non-family members, their involvement should be based on appropriate education, training and experience.
3. Determine who should own the business and why and how ownership will be transferred. There are a variety of ownership options such as turning it over to family members, selecting management team members, identifying partners or investors, selling the company or combining any of these options. This decision may change over time so transition plans should be revised annually. Also, develop an estate plan. Estate planning is a key component to business transition planning.
4. Start by reviewing your entity structure. An entity structure, selected at the creation of a business entity, is not necessarily meant to last forever. Without an annual review of the entity structure, business may pay excess taxes, expose its assets and owners to liability, or fail to set up their business for a possible sale or ownership transition. Second, make sure you have appropriate documents for your business (buy/sell, stockholder, operating and partnership agreements) and your individual needs (wills, trusts, power of attorney, health care directive)
5. Work with your accountant to evaluate techniques for minimizing estate taxes such as transfers, discounts and freezes, and to ensure appropriate cash is available to pay estate taxes. There many ramifications for businesses without a transition plans don’t wait until it’s too late make one now.
JIM REDPATH
CEO
HLB Tautges
Redpath, Ltd.
jredpath@hlbtr.com