Easy steps to prepare your family business for the next generation
The future of your family business may seem like a problem for tomorrow or sometime next decade, but forward-thinking business owners know they need to plan for the future today. The steps you take now to prepare your company for the next generation will go a long way to determining how successful it remains after you retire.
It’s tempting to think that things will automatically work out for the best—especially where family businesses are concerned—but that rarely happens without planning.
Here are some easy steps you can take now that will help your business survive after you’re gone.
1. Write a formal succession plan
You might know in your head how you want the business to run when you’re gone, but that doesn’t mean what you want will come to pass. It certainly doesn’t mean that everyone will agree with you. In fact, not having a written plan can lead to conflict and legal disputes.
Put in writing how you want the business to run after you leave. Who will take your role? Will your job be divided among various family members? Will one of your children own the entire business or will they all be part owners? Is everyone in the family aware of your decision?
Talk to the people affected by your succession plan. Make sure they are willing and able to take a role in the business. Don’t assume that because you want your son or daughter to take over the company, they are capable of it or even want to.
By working on your succession plan early, you also have time to determine who has the skills to take over certain roles and who might need additional training.
2. Invest in professional development
Many business owners assume their children know how to run the family business because they’ve grown up in the business. That doesn’t mean that they have all the skills necessary to run the business successfully.
It makes sense, then, to invest in education and professional development, not just for your family members but for young employees who could one day take over management roles in your company.
Start slowly handing over more responsibilities to the people who will one day manage your company, so the job isn’t overwhelming to them when you decide it’s time for you to retire. By the time you go, the person or people taking over your role should already be very familiar with the job expectations and feel comfortable in the role.
3. Foster innovation
It’s no secret that the younger generations have embraced technology as a way to make business more efficient. Fostering technology and innovation in your business early makes it more appealing for the next generation to stay with your business for the long term. It also shows them that you are forward-thinking and that you value their input and ideas.
Adopt new technologies and encourage your employees to be innovative. They may find ways to make your business more successful, or at least more efficient.
Businesses can be operated as a sole trader, a partnership, a trust or a company, and even though the current structure may be appropriate for the current business needs, a change of structure may be advantageous if the aim is to transfer the business to younger family members in the near future. With the current Capital Gains Tax (CGT) general discount and small business CGT concessions there can be large differences in the tax payable on the transfer of businesses.
As well as the potential tax implications, business owners need to take into account factors such as personal liability, guarantees provided, finance and compliance costs in deciding what is the best structure for them.
5. Further information
Helpful information on how changing your business structure or ownership can affect your taxation registration and obligations can be found on the government’s business website.
Planning for the future might not be the most fun way to spend your time, but it is vital to do so to ensure the continued success of your business. It also keeps the transitional time after you retire as smooth as possible for those who follow in your footsteps.
Get in touch with us to find out more.