You have put years into growing your company from a one-man (or woman) shop into a thriving family business. Now you’re starting to look forward to stepping back and letting your children, family, or other trusted employees take the reins. Transitioning ownership of any business is fraught with problems that, if you aren’t experienced with it, can lead to problems that can become roadblocks. Here are a few tips on how to make your plan of retiring from the family business smoother and with less discord.
Creating a business succession plan for a family business can be made easier with the help of a business law attorney who understands the dynamics and pitfalls. The business law attorneys at the Northeast Connecticut Law Center have the experience, empathy, and personal wisdom needed to guide the business owner who wants to see his or her company flourish in the future. Call us today to start the conversation 860.928.2429 in Putnam. Or click here to view our business law capabilities.
Identify Key Employees Within the Family Business
Many family business owners have a dream that one day their children will take over the company and they will retire, spending their time on grandkids and travel. However, the reality is that not every son or daughter wants to follow his or her parent’s footsteps. When it comes time to plan for retiring from the family business you need to be objective. Look at who does the work in your company, and who has the training, ability, and temperament to step up as you step back. The key employees in your company may be:
- One or more of your children
- Other relatives (like your own siblings, nieces, or nephews)
- Non-family employees with a long history with the company
You should seriously consider retaining a business attorney to help you assess the strengths and weaknesses of the candidates you have in mind. A business attorney can help you separate sentiment from business strategy, so you make the right decisions on this most crucial step in retiring from the family business.
Delegate Duties and Ownership within the Company
The years leading up to when you plan on retiring from the family business should be a learning experience. You should use that time to train your key employees to take on the management of the company. That means it is necessary to give up some control.
It is often difficult for business owners to share the leadership responsibilities. You may be used to being the one to approve every transaction and attend every meeting. However, as you prepare your key employees for their new roles, you should begin to delegate that work to them according to their strengths.
At the same time, you, your business lawyer, and your financial planner may decide it is best to transition ownership of the business gradually, rather than all at once. The decision will depend on tax laws related to gifts and inheritance, investment caps, and other considerations including the financial situations of your key employees. You will need to create contracts that control who will own what shares, when, and how they will receive them.
Create Incentives for Key Employees to Take on Risk
Those contracts can also give you an added level of stability in your workforce. The last thing you want when you retire from the family business is for your successor to sell or close up shop. You want assurances that your key employees will put as much love, attention, and work into your company as you did. To do that you may want to build in financial and equity incentives to your transitional contracts to keep them committed to the cause:
- Salary continuation — you can promise the key employee will receive a full salary for a set amount of time, assuming he or she stays with the company.
- Fringe benefits — you can offer to provide a company car, phone, additional vacation days, retirement match, or other benefits to entice key employees to stay on.
- Bonuses — you can offer bonuses based on the success of the company, which will encourage your successors to work for the company’s benefit.
Create a Retirement Plan to Transition Out of Day-to-Day Business
It’s not enough to plan for how key employees will step up when you retire. You also need to plan how you will step away. Most businesses would not do well if their CEO simply stopped coming to work one day. There will always be a learning curve for new management, and there could be questions that arise after you are gone that only you can answer.
Work with your business lawyer, key employees, and family, to plan out how you will go from full-time to full retirement. You may want to step down your time at work gradually or reduce your responsibilities to the business over time. If your work is based on accounts or specific clients, you may want to transition them to other employees a few at a time, retaining only special assignments. Eventually, you may only come in for board meetings or when emergencies arise. Still, your key employees will know they can contact you if they need to, but you won’t be micromanaging their affairs from your recliner.
Get Help to Plan for Retiring from the Family Business
Creating a business succession plan that recognizes the strengths of key employees while at the same time taking into consideration important family dynamics isn’t easy. You need the help of an experienced team that understands the law and tax implications in Connecticut, as well as family politics. At the Northeast Connecticut Law Center, our attorneys focus on business law and estate planning. We can help you form a plan that protects your family and your business so that you can retire with confidence. We practice law in many Northeast Connecticut counties. To learn more about how we might help you, call us at 860.928.2429.