Businesses of all sizes and types need a business plan. The business plan designed for a run-of-the-mill everyday business is different than that designed for family-owned businesses. Though both business plans serve similar purposes, there are key distinctions between the two. Let's take a closer look at the importance of establishing a family business plan and how this plan differs from traditional business plans for other companies.
Business plans are essentially guides or roadmaps for the entity. Businesses owned outside of the founder's family and those owned by a family unit both require detailed business plans. Experienced business professionals insist business plans are more important for family businesses than those not owned by families. The logic in this statement is there is a heightened chance for conflicts that can prove quite divisive when the company is owned by family members. If the founder/elder passes, there is the potential for family members to fight over ownership and control of the business.
Part of the reason why family businesses are different from regular businesses is the fact that tiffs often develop between family members, especially when an elder passes away. Ideally, the business plan will detail how ownership is to be divided up and important business affairs are to be handled when an owner passes away. As noted below, estate planning is a key component of family business plans. With the proper preparation and oversight, it is possible to avoid an array of potential stumbling blocks.
The average family-owned business has a unique history and dynamics that few outside of the family unit can fully comprehend. A comprehensive business plan makes it easier for the family business to change hands from one generation to the next. There are also inheritance and estate issues in play such as probate and taxes following the death of an owner. In some cases, buyout agreements should be prepared well in advance so disagreements do not arise about the value of an owner's stake.
It will take some time to develop a truly comprehensive family business plan. Provide everyone with an opportunity to contribute to the discussion, request feedback from all family members involved in the business and it will prove that much easier to create a family business plan that everyone with an ownership stake finds mutually beneficial.
Invest the time and effort necessary to create a family business plan and you will steer clear of roadblocks that have the potential to prove quite divisive down the line. Once everyone is in agreement with the family business plan, the focus will shift to making money rather than worrying about one's stake in the business. Creating a family business plan is also beneficial in that it helps everyone with a vested interest get that much closer to their goals. Let family members know your overarching aims and they will understand why you would like to shape the family business plan in a specific way. Furthermore, creating such a plan provides everyone with an opportunity to discuss what is most important, identify boundaries and provides a coherent roadmap for the future.
If the head of the business were to pass away, there is the potential for family members to squabble with one another over the direction of the company, decision-making, ownership stakes and more. This is precisely why every family-owned business should spend the little bit of money necessary for estate planning. Let an estate planning attorney create the legal framework for your company's unique estate planning and you will dramatically improve the odds of enjoying a successful generational transition. Estate planning determines how assets will be divided, when they will be divided and shifts business responsibilities to specific family members.
The best estate planning attorneys are willing to spend the time and effort necessary to fully customize each client's unique succession plan. A project of this magnitude requires a thorough review of the client's assets as well as documentation that details how those assets will be distributed upon the client's passing from this plane of existence. Savvy estate planning attorneys take their responsibility a step further by proactively addressing the tax ramifications of the transfer of the business's ownership upon the client's death or after divorce. When all the details of the client's business and assets are accounted for, there will be a clear path toward transferring stock or business ownership in a timely manner that minimizes tax exposure.