Your family business. It’s like a child to you. You’ve nurtured it and watched it grow and develop. You’ve put your heart and soul into it, and it didn’t take days or weeks. It took decades to build your operation to the size, scope and value it holds today.
So when it comes time to hand your life’s work to the next generation, the same careful thought and planning should be given to the transition as did the creation. Without it, your family business could get swallowed up like two-thirds of family businesses that don’t survive the transition from the first generation to the second.1
How do you get started?
All business transitions start with a basic conversation among the current owners and the potential future owners. In cases of family businesses, the conversation should also include heirs not interested in joining or purchasing the family business, because they, too, have an important role.
Once these key players are engaged and ready to begin planning together, an outside team of professionals is needed. Your Farm Bureau agent is a great place to start because he or she can help you see the big picture and gather the information needed to begin.
What does a business transition strategy look like?
Transition strategies are unique to each business and a variety of options are available. One common practice used in family businesses is the Buy-Sell Option. Using a Buy-Sell Option, a buyout agreement among the business heir(s) and non-business heir(s) is created based on the value of the business. The agreement is detailed in the owners’ will or trust and the business heir(s) can use life insurance or other investment strategies to fund the purchase of the business from non-business heir(s). This strategy is particularly effective at reducing potential family conflict because it provides all the details of the buyout leaving nothing to be negotiated at the owners’ death.
Some other common elements in a business transition strategy include:
• A detailed description of the business, including future goals and objectives.
• An evaluation of the business, including its value and liabilities.
• Your personal retirement plan.
• Life insurance and long-term care coverage.
• Complete and updated estate preservation documents, such as a will, trust and powers of attorney.
Contact your Farm Bureau agent today to start the conversation. Remember, the best time to plant a tree was 20 years ago; the second best time is today.
Information provided by David Finneseth, agent, Farm Bureau Financial Services, 1009 Willis Ave., 515-465-2005, email@example.com.