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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
How to Choose Your Business Successor
Say you have spent most of your adult life building a small start-up business into a thriving company. At long last, you may be preparing to step away from the business or at least scale back your heavy workload. After all, you deserve it.
But whom will you pick to run the company when you are not around on a full-time basis? Finding someone to "fill your shoes" may not be an easy task. You will probably want someone to carry out your legacy.
Usually, this will be another family member, but it might also be a longtime employee who knows the business inside-and-out. In either event, you should try to ensure that your choice will not throw the business into a tailspin or irreparably damage any family relationships.
Here are several suggestions you might follow when choosing the next leader of your company:
*Make your future intentions clear to the rest of the family. Don't suddenly spring it on them that you have decided to walk away. Give them some time to get used to the idea.
*Do not make any hasty decisions. Draw up a list of the attributes each individual brings to the table. Also, consider each candidate's negatives. Try to avoid preconceived notions and focus on actual performance.
*Schedule a family retreat over a long weekend to discuss the need for a successor. Give other family members a chance to express their opinions about who should be leading the company. To avoid the usual distractions, try to hold the retreat in a remote location, or at least far away from the main office. Include all family members, including in-laws, in the invitation.
*If a clear successor does not emerge right away, or if multiple family members are interested in taking the helm, develop a job description to cut down the emotional aspect of the decision. State what the job requires in terms of talent, expertise and personality.
*If no family members are up to the task or if they do not want the responsibility, consider a nonfamily leader. Typically, a business will already employ a manager who understands your values and can be groomed to lead the company. If not, you might use an executive search firm to identify candidates.
*Seek advice from an outside board of directors, if you have one, or from professionals or consultants familiar with your business and succession planning.
Keep in mind that choosing the next leader is only part of a succession plan. For instance, you should have a "buy-sell agreement" drafted that establishes the value of the business. This is vital not only when you retire but if you decide to sell your business interest or if you should suddenly die or become disabled.
Similarly, a power of attorney can give your successor some flexibility in the event of an unexpected incapacitation. Also, secure adequate life insurance for yourself and other key executives. The proceeds from a life insurance policy could be used to pay estate taxes and to meet other potential liquidity needs.
Finally, coordinate aspects of your business succession plan with your estate plan. Your professional advisers can help you address the key issues and investigate ways to minimize your family's tax burden.
But whom will you pick to run the company when you are not around on a full-time basis? Finding someone to "fill your shoes" may not be an easy task. You will probably want someone to carry out your legacy.
Usually, this will be another family member, but it might also be a longtime employee who knows the business inside-and-out. In either event, you should try to ensure that your choice will not throw the business into a tailspin or irreparably damage any family relationships.
Here are several suggestions you might follow when choosing the next leader of your company:
*Make your future intentions clear to the rest of the family. Don't suddenly spring it on them that you have decided to walk away. Give them some time to get used to the idea.
*Do not make any hasty decisions. Draw up a list of the attributes each individual brings to the table. Also, consider each candidate's negatives. Try to avoid preconceived notions and focus on actual performance.
*Schedule a family retreat over a long weekend to discuss the need for a successor. Give other family members a chance to express their opinions about who should be leading the company. To avoid the usual distractions, try to hold the retreat in a remote location, or at least far away from the main office. Include all family members, including in-laws, in the invitation.
*If a clear successor does not emerge right away, or if multiple family members are interested in taking the helm, develop a job description to cut down the emotional aspect of the decision. State what the job requires in terms of talent, expertise and personality.
*If no family members are up to the task or if they do not want the responsibility, consider a nonfamily leader. Typically, a business will already employ a manager who understands your values and can be groomed to lead the company. If not, you might use an executive search firm to identify candidates.
*Seek advice from an outside board of directors, if you have one, or from professionals or consultants familiar with your business and succession planning.
Keep in mind that choosing the next leader is only part of a succession plan. For instance, you should have a "buy-sell agreement" drafted that establishes the value of the business. This is vital not only when you retire but if you decide to sell your business interest or if you should suddenly die or become disabled.
Similarly, a power of attorney can give your successor some flexibility in the event of an unexpected incapacitation. Also, secure adequate life insurance for yourself and other key executives. The proceeds from a life insurance policy could be used to pay estate taxes and to meet other potential liquidity needs.
Finally, coordinate aspects of your business succession plan with your estate plan. Your professional advisers can help you address the key issues and investigate ways to minimize your family's tax burden.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
Lake County IL CPA
847-816-1946
847-816-1946
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