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Minding Mom & Pop’s Shop: Five Steps to the Succession of Your Family Business

October 10, 2013

Filed under: Business Planning,Business Succession Planning,Estate Planning,Estate Taxes,Franchises — Neel Shah @ 9:00 am

Succession planning for a family business is often no easy task. Recently, an article in Forbes outlined the five necessary steps for a viable succession plan. The five steps include:

English: Demise of a family business? Coulson ...

(Photo credit: Wikipedia)

  1. Planning for the general transition of the business: The article notes that only one third of family businesses successfully make this transition.
  2. Creating a plan that aligns the family interests: This is important because the succession of a business must serve many family goals. Not only must it pass the business on to the next generation, but it must also provide a retirement income for the current owners.
  3. Creating a buyout agreement that balances financial returns: Often it is difficult to value a family business. While the retiring owner may look to the balance sheets for the value, the real value of the business is often based on a model of earnings capitalization.
  4. Creating a succession plan that quells any potential interfamily disputes: Often, interfamily disputes can spell the end of a family business. These disputes are most typical where the interests of all family members are not aligned. Pay particular attention when there is a divorce or death that leaves a non-involved family member stock.
  5. Avoid potential estate and inheritance issues, such as tax and probate delays that may hold up the succession of the business.  

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