How to Ensure a Lasting Legacy for Your Family-Owned Business

Business owners have multiple plates spinning in the air on any given day — from executing essential daily operations to overseeing production and exploring new opportunities for business growth. As a result, some of the most important — but less pressing and exciting — facets of the business get pushed to the back burner.

One of those important items is succession planning.

In the case of a family-owned business, owners may have received the business from a parent or grandparent and may expect that their own children will enjoy the same relatively simple pass-down process.

However, today 58% of small business owners do not have a succession plan.

Click here to view our webinar recording on optimizing the value of your business and ensuring a more successful intergenerational transition.

Many owners plan to run the business indefinitely or for the rest of their lives. And some intend to keep the business in the family and gradually transition ownership to a daughter or son, or grandchild.

But if something unexpected should happen to you before retirement without a succession plan in place, a slew of uncertainties begin to circle your business:

• To whom does ownership transfer?
• What happens to the value of the company?
• Does your family sufficiently understand the business model and the industry?
• What if your children have little or no desire to run the company?
• And if they are interested, what if they need some time to get in a position to maintain and successfully grow the business?

To address these uncertainties and avoid leaving loved ones with additional work during a difficult time, forward-thinking business owners are realizing that something called a Family Love Letter is an extremely manageable solution for effective succession planning and a smooth transition of generational wealth.

What Is a Family Love Letter?

Successful transition of a family business depends on the readiness of the current generation, the next generation, the family, and the business.

A Family Love Letter (FLL) is a planning tool that bridges understanding and informational gaps from one generation to the next and among all the above-mentioned entities.

Imagine being able to optimize the value of your business and ensure a more successful intergenerational transition. Imagine if your business’s key decision makers came together in a conversation that resulted in agreed-upon desires for the future of the business. That’s exactly what a FLL does.

What if you could have answers to all of these questions:

• How will the business be divided among family members involved in the business and those who are not involved?
• What specific steps can I take to ensure equalization planning for the two above-mentioned groups in my family?
• Can we separate control and income related to the family business from its equity value and future appreciation?
• Can I pass on equity and future appreciation without incurring a transfer tax?
• How can I protect against a divorce from triggering income taxation from stock redemption problems for my kids?
• What inheritance vehicles are available to restrict a divorce from forcing my children to “give away” family assets?

By initiating the succession conversation, we are able to assist business owners with the construction of their legacy plan and ensure that everyone is on the same page.

Understanding the next generation’s passions — whether they are working towards a leadership role in the business or an outside pursuit — can contribute to maximizing enterprise value.

We’ve seen the FLL creation process minimize difficult and uncomfortable situations and prevent future disputes and hurt feelings within the family.

Benefits of Succession Planning with a Family Love Letter

When a family establishes a shared vision, clear purpose, and aligned values, roles become clarified and family members have peace of mind.

But beyond the benefits to the family members, a FLL can also protect the business you’ve worked so hard to establish. After all, your business impacts your employees, vendors, suppliers, partners, etc.

Research shows that 75% of small business owners say the reason they don’t have a succession plan is simply because they’re enjoying running their company and aren’t planning to leave.

But what owners seem to be ignoring is that succession planning will enable the owner to:

• Run the business longer
• Ensure the business can run without them should the unexpected occur
• Maximize the value of one of their most prized possessions
• Strengthen a lasting legacy

Learn More

Secure the peace of mind that your family is on the same page, everyone’s voice is heard, and each heir’s role is understood.

Family business owners are uniquely positioned to pass down business, financial, and personal success through multiple generations. But unless you have a solid succession strategy in place, you never know how the future will unfold.

Combining the aggregation of your paper trail with an invaluable dialogue about legacy, the Family Love Letter reduces confusion, stress, and conflict for your loved ones in a time of grief.

Watch our latest webcast to hear a discussion from our expert panel about how family business owners are using the Family Love Letter to bridge the gap from one generation to the next.  You’ll learn:

• Best practices that protect family business value and personal wealth for multiple generations.
• How the Family Love Letter organizes your succession planning affairs to prepare a younger generation to successfully manage your family-owned business.
• Steps for facilitating a lasting legacy for one of your most prized possessions through open communication.

Click here to watch the webinar recording.

About the Author: