Most New Jersey business owners start family owned companies with the hope of being successful for generations to come. However, a study by the Family Business Review revealed that family owned businesses tend to pass into the next generation only 30 percent of the time, and even fewer linger until the third generation. Fortunately, estate planning that outlines a clear plan of succession for the business may help increase the chances that it will leave a lasting legacy.
Many estate planners focus on minimizing taxes. While this is important for a family owned business as well, it is equally important to consider how to preserve the value of the business and provide security to the family members who will manage it in the future. Failing to plan for the succession of the business could result in the liquidation of its assets when the owner dies, which can hurt loved ones as well as company employees.
Before succession planning, the business should be appraised by a valuation specialist to determine its value. Once this is done, it may be beneficial to explore different options for succession that align with future goals and the family's needs. The final written document should be the product of family discussion and consensus about the future of the business. However, it should be reviewed every so often and updated if necessary to accommodate any changes.
For many in New Jersey, the sweat, dedication and hard work that they put into their family business is worth too much to leave it to chance. Including a plan for succession in the estate planning documents may be critical to the success of the company in the future and for providing financial security as it passes through the generations. However, this can often be an emotionally charged process, so it may be helpful for families to seek the assistance of an objective mediator as they work out the details.
Source: columbusceo.com, Guest blog: The importance of succession planning, Bea Wolper, Jan. 20, 2014