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Family Business Estate Planning One-Third Of The Fortune 500 Are Either Family-Owned Or Family-Controlled

Rather than a single, dramatic movement, the smooth succession of a business more resembles a flow of events that occurs over time.  Like a well-run relay race, the handing over of a company should be graceful, carefully strategized and well executed if it is to be successful. Unfortunately, the majority of business owners neglect to plan so seamlessly for their own succession. More often than not, the reasons are psychological. No one likes thinking about their mortality, and  ntrepreneurs are no exception. Moreover, some owners so closely identify with their ventures that they can't imagine their offspring of long hours and hard work continuing without them.  Others believe they're too busy to plan for the day they will leave and consequently put off succession planning until tomorrow. But tomorrow may be too late.  Serious illness, disability or death
can catch a firm by surprise.  A crisis such as this brings great upheaval, and it's difficult to make rational decisions in the best interests of a company when emotions are running high.  That's why a well-thought out succession plan -- a kind of insurance policy -- is essential to the continuation of a business, no matter what its size and structure. The Time For Planning Is Now

Ninety percent of the 21 million U.S. businesses are family-owned, and one-third of the Fortune 500 are either family-owned or family-controlled.  Yet only 30 percent of family-run companies today succeed into the second generation.  An even smaller 15 percent survive into the third.  The reason, according to many experts, is obvious:  the lack of an orderly
succession plan. "It is a daily miracle that there are any owner-managed firms left in the world with so few making plans for their own continuity," observes Leon Danco, founding director of the Cleveland-based Center for Family Business.
"The toughest thing for the entrepreneur to realize is that time is constantly running out. 

Most owners don't plan because they don't think they are ever going to retire or die." Owners should begin planning while they are still healthy and active
in their enterprises.  "If you wait until after you're 65, you can't do many of the jobs associated with succession planning, such as teaching, explaining how the business operates and passing on the spirit and vision with which it was founded," notes Dr. Michael Sales, co-founder of The Family Business Resource Center in Newton, Massachusetts. The time to plan is between the ages of 55 and 65, experts advise. And the handing over of the baton -- the plan itself should be a process, rather than a single event.  Some succession consultants recommend a three-to-five year plan while others advocate five to 10.  Some even recommend 10 to 15 years.  All agree, however, that the more time allotted for planning, the better the outcome will be.
Adequate planning time enables you to test potential successors in different roles and evaluate their maturity, commitment, business acumen and leadership abilities.  If you've already anointed your successor, adequate planning time allows that individual to build up expertise so the passage transpires so gracefully that no one in the company even feels it
happen.

Let The Planning Begin Begin by writing down your thoughts about when you want to step away from the daily operations of the business.  Would you like to spend more time with your spouse? What do you want to accomplish over the next 15 years and how much money do you need? What personal goals could you achieve if you weren't running the company and what would success in a new endeavor mean to you?

Next, advises Sales, discuss your ideas about the future with your family, senior management team and key employees.  Decide how long you want to remain active in the company and in what capacity.  If you see retirement as an opportunity to travel, be sure to include that in your discussion as well as where you want to live and what role, if any, you
want to play in your community. At the same time, think about the long-term stability of the business.

Most corporations and partnership business agreements spell out what will  happen in terms of shares of stock, assets or the buying out of the company by remaining principals or partner(s) if one of the owners or principals retires, dies or becomes disabled. But sole proprietorships often operate without any such legal blueprint, almost as if the owner is immortal. Once you've established these parameters, begin revising your business plan -- assuming you already have one -- or write one if you don't.
The most effective business plans are prepared by owners in conjunction with their successors.  They include any future new products, plans for expansion, growth or new investment, and a candid assessment of a company's current environment and competitive positioning.  This joint business plan exercise will give you an opportunity to evaluate your successor's goals and ideas for the firm, while forcing your successor to think through and write down specific plans for running the operation.
And as your successor is putting thoughts down on paper, recommends succession planning expert Mike Cohn in his book, Passing the Torch, you as current owner should be developing a business transfer plan.  In it, identify certain "trigger dates," including dates when: You want to begin transferring ownership to others. Control is shifted, i.e., more than 51 percent of ownership of voting   interests. The balance is transferred. Responsibility for day-to-day operations rests with your successor. You plan to formally retire.

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