Business Succession Planning

My client list contains many businesses that are family-owned and operated with plans to leave the business to the next generation. There are many issues to consider if you plan on doing this in the future.

I'll leave the legal aspects to a post some time in the future. But for now, if you plan on leaving your business to a family member, keep these things in mind.

1. Incorporation Have you incorporated? Sole proprietorships legally die when the owner dies. They are not good vehicles to hold the business interests. So first, consider incorporating your business.
   
   
2. Separate Business and Personal Finances You will want to make sure that all your personal and business expenses stay separate. Many people will mix the finances for various reasons, mostly because of ease. For more than succession planning, this is not a good idea - tax and corporate veil protections are additional reasons not to mix personal and business finances.
   
   
3. Minimize Debt If possible, you will also want to minimize the debt load of the company. Your family members will appreciate getting a business without a lot of debt. Furthermore, you are probably personally guaranteeing much of this debt. When you leave the business, you will not want to worry about the business defaulting and these creditors coming after you.
   
   
4. Involve The Family Member You'll also want to get the family members involved as soon as possible. Make sure they are on board with the idea of taking over in the future. Then you will want to train them in as many aspects of the business as possible. You will want to introduce them to important clients and vendors and let them develop their own working relationships with them. You will want the employees to trust the incoming family members so that when they eventually do take over, there will be no interruption in operations.
   

For now, though, these are some practical steps that you should be taking to make sure that the business will be suitable for passing along.