Family-owned businesses make up about 32% of the businesses in Wisconsin. However, only about 40% of family businesses transition to a second generation, with only 13% of family-owned businesses being passed down to a third generation.
Unfortunately, without a detailed succession plan, family-owned businesses may not survive for long after being passed to the second generation. Our Wisconsin business lawyers offer the following tips for selecting a capable and trustworthy successor for a family-owned business in Wisconsin.
Early Succession Planning Is Essential for Wisconsin Businesses
The risks of failing to develop a business succession plan include legal disputes, business closure, and tax implications. Early succession planning allows you to develop a detailed succession plan that addresses all relevant issues. It also provides sufficient time to train and mentor your successor. Ideally, you want to begin succession planning 10 to 15 years before you plan to retire.
Identify Potential Successors
Many family-owned businesses are passed to the next generation. However, a business owner’s child might not be the best person to take over the business. Consider all potential successors, including family members, trusted employees, and external candidates. Professional input from a Wisconsin business succession lawyer can provide an objective perspective of potential candidates.
Assess the Qualities of Potential Successors
Identifying the right qualities in a business successor requires an objective assessment of their skills, experience, and personal qualities. Qualities to look for when choosing a successor include:
- Leadership and decision-making skills
- Industry knowledge and financial acumen
- The ability to build strong relationships with employees, customers, and vendors
- Effective communication skills
- Open to feedback
- Fits with the timeline for business succession
- Excellent conflict resolution skills
- Commitment to the company values and vision
- Willingness and readiness to lead
- Ability to learn and adapt to new situations
In addition to looking for the right qualities, you want to be aware of qualities that could indicate a person is not the right successor for your business. For example, an arrogant person who dominates the conversation may not be willing to learn and adapt. Someone resistant to change may be dismissive of new ideas, which could hold a business back.
Prepare Your Successor
A business successor may already be involved in the business, but this is not always the case. Implement a formal training program that allows the successor to learn all aspects of the business and obtain hands-on experience. Provide opportunities for your successor to learn directly from you and other key employees. Your successor may also benefit from targeted training courses, certifications, and workshops.
Communicate the Succession Plan
Your successor needs to be involved in developing the succession plan. By involving your business successor in the planning process, you give them a clear view of the business and timetable. You and the business successor can set milestones to reach before moving to the next step in the succession plan.
Why Legal Guidance Is Essential for a Smooth Succession
Succession planning is about much more than choosing the right successor for your Wisconsin business. There are numerous legal and financial considerations to take into account. An experienced Wisconsin business lawyer can assist you with:
- Developing tax-efficient transfer strategies
- Coordinating business and estate planning
- Resolving family disputes
- Accurately completing a business valuation
- Planning the transition timeline and training of successors
- Building a transition team with legal, financial, and operational professionals
- Communicating the succession plan with employees, suppliers, and customers
- Drafting buy-sell and succession agreements
- Addressing legal requirements for the succession of specific types of business entities (e.g., sole proprietorship, LLC, partnership, corporation, etc.)
Contact Borakove Osman LLC to schedule a consultation with our Wisconsin business succession attorneys. We provide straightforward legal and strategic guidance to ensure the long-term continuity of your business, protecting your legacy for future generations.
