If you are a fan of K-dramas, movies, and news, then you know that not having a succession plan can lead to devastating consequences, especially when you have a family business. Consequences such as backstabbing, deteriorating business performance, lawsuits, bitterness, and rifts within the family can occur. The tension between the eagerness of the upcoming generation to take on the leadership role for control and the founding generation’s ability to relinquish control is the major cause of failed relationships and companies. This creates a series of situations that directly and indirectly affect revenue, the management system, and the entire operations of a business. Business owners know how important it is to implement a succession planning course of action, yet they delay these decisions until it’s too late. Every day, businesses face the same challenges and hurdles as a result. But it doesn’t have to be like that—your family business doesn’t have to turn upside down as soon as you leave the company.
If you are planning to retire from your 50-year-old family business, consult a renowned CPA in Seattle, WA, to help you out.
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What is Succession Planning?
Succession planning involves carefully considering who or which generation among the family members from the current leaders, partners, or founders will take voting control of the family business. Then a well-put-together written plan is put forward, which mentions the details of the successor. Important things you must consider while implementing a succession plan for your venture include: who exactly will take over? Does the person taking control adhere to the position’s capabilities? Should an outsider, besides the family, be considered for ownership transition? Is there a need for a financial expert, investment broker, attorney, or consultant?
Why is Succession Planning Important in Family Business?
The majority of family businesses fail to rise in the next era, the reason being the failure to select the right and adequate executive for the enterprise. The senior generation started a company that has evolved to be more like an empire. Most likely, the founders would not trust the next generation to understand the tenacity and work culture of the business. It implies that they don’t trust the next generation to take full responsibility for the enterprise, and similarly, the future generation also doesn’t sense the empowerment to do so.
Ultimately, business owners find themselves at a pinpoint needle, running out of time and approaching the clock’s end when someone important leaves. The absence of a co-designed shift strategy can create havoc in a family organization, pushing it toward monetary and survival risk. For instance, if the founding generation suddenly realizes that they have been suffering from a medical condition that restricts them from handling the business operations or making mindful decisions, or if the next generation, who should take ownership, throws in the towel because they feel they are not included in business decisions, ever. Then what will happen to the business you build from ground zero?
How Do I Create a Succession Plan?
- Contact a Consultant: You can discuss succession planning with financial experts and business advisors; they will guide you in implementing this strategic ploy with utmost accuracy. Moreover, they will help you determine and regulate training practices for the ‘ones’ taking over the leadership role.
- Start the Conversation: Start talking about succession planning. Inform your founding members, board of directors, and employees who are competent enough with the required skills for designated positions.
- Consider Tax and Inflation Rates: Understand current market values, taxation, finances, and the future market cash flow of the business. If the family business has two or more partners, you will also have to take their votes for a final decision.