I was talking to an old friend of mine who mentioned that businesses don’t plan for succession.   And that is really something that needs to be reviewed.  In the past the problem for succession planning was death taxes.  For small businesses, estate taxes used to chew up the value.  Now death tax exemptions are $10 Million per couple (Federal only), some states still have lower limits.  So, what are the succession issues these days.

The first one is of course death or disability of the key person.  Who takes over when the king can no longer be king?    So, the question of the “who” is perhaps the most important question to be answered.  I remember reading the story of one business where a father died suddenly, and his family entrusted the business to a manager who exacted a great salary who was brought in from the outside.  The manager knew the business generally, but did not understand this business.  As a result, he made some changes to the business model that doomed the business to bankruptcy.  Another business, the owner provided for his successor and groomed that successor.  The business thrived and grew over time until the successors decided it was the optimum time to sell the business and they reaped a huge reward.  So, the lesson here is to try and home grow the successor.  Either be it a family member or a trusted employee.  The best manager grooms his  or her successor.  This permits the manager to retire, to die or to lose his or her mind in peace and permits his or her family to be provided for should one of these events occur.   And you know what, there is a 100% change that one of those events will occur.   Our next installment will talk about financial and tax strategies to prepare for the next step.  Stay tuned.