Laying the groundwork for succession

Most business owners truly cherish their businesses and expect to pass it on some day to their children.

Or perhaps sell it to an employee or an outside buyer.

Carefully making plans for this change in ownership is often what will fund the owner's retirement along with ensuring the healthy continuation of the owner's business for generations to come.

However, many small-business owners make easilyavoidable mistakes when it comes to succession planning that can potentially thwart their dream:

* Waiting too long to plan.

If business owners plan at all, many of them leave succession planning until the last moment.

The problem with this is that the ideal succession plan requires laying the groundwork over many years.

In fact, some experts recommend planning your exit strategy from the day you start the business.

Often it's the way you plan to exit the business tomorrow that strongly influences how you structure and operate the business today.

* Assuming your children love the idea of taking over the business.

Though many children plan to eventually take over the family business, not all of them have that intention.

What if your child's career plans don't include an involvement in the family business? It's critical to talk to them about what they see for themselves.

Knowing their desires as soon as practical is important to being able to pursue other avenues if necessary.

These may include selling to a valued employee or outside buyer.

* Dividing the business equally among heirs.

Equal partnership among heirs is usually a recipe for disaster because of inevitable conflicts, different skills and different vision.

Ultimately, one heir needs to run the company.

That's why it's critical to plan well in advance to see who among your children has the talent and genuine desire to run your business.

And if a child doesn't want to be involved in the business, devise a way to leave the child non-business assets such as insurance, or perhaps nonvoting shares in the business.

Keep in mind this can lead to conflict as well.

* Waiting too long to empower the heir.

Another common mistake is waiting too long to give genuine responsibility and authority to an heir.

Many owners never give it until the day they retire only to learn the hard way that their child is ill prepared for the task.

Involving them in decisions and how to run the business early on can relieve pressure on you and your heir.

They need to build necessary relationships with vendors, employees and customers without you as a middleman.

They also need to make mistakes.

After all, you made mistakes when you were starting and growing the business.

And these mistakes may be easier to bounce back from with you still involved with the business instead of after you've left.

* Not trusting them.

This goes handin- hand with the failure to give your heir genuine authority.

There is a balance between blindly trusting a person because they're family and being suspicious of every move made.

If you've trained them right, they can be trusted * Not letting them work for another business.

Encouraging an heir to work for someone else before committing to the family business can provide valuable training.

It can also give them a clearer sense of whether they want the commitment of running the family business.

* Being secretive about your plans.

Business owners frequently hold future heirs at arm's length when revealing anticipated succession plans.

No matter what your concerns, this secrecy is a disservice to your heirs and potentially a disaster for the business.

They need to know your plans early on, so they know how to work around your exit, and step in as the primary business decision maker.

Keeping them informed through periodic family meetings is your best bet.

* Not thinking of your retirement years.

Retirement can be difficult because for so long your business has most likely been the all-consuming center of your life.

It may even be your personal identity.

Without a clear sense of what you want to do in retirement, you may be inclined to drift back into the business to do more harm than good by undermining the decisions the current business owners are making.

* Planning alone.

Business succession planning is complicated and contains potential land mines.

Keep in mind we haven't even addressed tax issues here.

Outside experts can be invaluable, particularly someone who can lead family meetings and ease family conflicts through their knowledgeable, objective perspective.

Mike Klaich, a certified public accountant, is managing shareholder of Muckel Anderson CPAs in Reno.