Passing a family business to the next generation is an exciting yet stressful time. Business owner and finance expert Anthony Cavaluzzi recently offered his top tips for succession planning.
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What Is Succession Planning?
Succession planning is necessary when passing a business from its current owners to the next. The organization must create a plan of action for the business and possible position openings. The goal is to have the right people in the positions necessary to keep the business moving toward success.
Passing a Business to the Next Generation
Succession planning requires several phases, including the assessment phase, the evaluation phase, and the development phase.
Assessment Phase
The assessment phase of succession planning includes identifying certain hurdles the business may face in the next five years. It includes locating critical positions that need filling to keep the business running optimally.
Anthony Cavaluzzi explained that the assessment phase also involves identifying the knowledge, skills, and competencies necessary to succeed.
Evaluation Phase
The evaluation phase involves looking into the employees in the company with the most potential. They will likely be the ones leading the business toward future success. This may also include considering new hires with high skill levels.
“While evaluating, business executives will consider the skills and competencies leaders in the company will need to surpass the expected business challenges,” Cavaluzzi said.
Development Phase
The development phase is the final step in which the successors gather knowledge from the departing business owners. It is also when the talent pool steps into their critical new positions and starts working on career and company development strategies.
Tax Considerations
There will be tax liabilities associated with succession planning for both the current owners as well as the future owners that need to be considered. This is a very important aspect when doing Succession Planning.
Each business will have different tax aspects, so it needs to be evaluated by a tax attorney so the current and future owners know what will be coming and won’t be surprised when it happens. But good tax planning will help alleviate most of the tax consequences.
Tips for Passing on a Business
Create a Shadowing Plan
Start years ahead of time by having successors follow business leaders throughout their work day. Cavaluzzi said, “Shadowing can begin when children are young by offering ‘bring your child to work’ days and other strategies.”
Put Key Employees in Numerous Positions
It’s essential that successors understand all aspects of the business. Cavaluzzi suggested moving family members to important positions so they manage different work groups. He also recommended having them work elsewhere before taking over the family business. They can grab industry insight and create wider business networks.
Require Integrity
A family business runs on integrity. It is essential that future generations do not develop poor habits due to the privilege of taking over a company.
“Implementing integrity begins when the expected successor is young,” Cavaluzzi said. “A home that emphasizes the importance of integrity will create future business leaders with respectable morals and values.”
Keep the Entire Family Informed
Anthony Cavaluzzi concluded by explaining that passing a business down from one generation to the next requires transparency within the family. Many times, this involves informing non-employee family members about the company’s succession planning and its goals for the future.