Succession Planning for Family-Owned Businesses Is Critical for Rural America
Smith, Stephanie M., Rural Cooperatives
Editor's note: This article provides a general overview of the advantages of business succession planning and the impact on rural communities if family-owned businesses fail to engage in succession planning. A second article, which will appear in the next issue, will probe into the legal and financial aspects of succession planning, including how owners can enjoy deferred taxation as a benefit of selling a family-owned business to its employees (which may include family members).
Business succession planning ("succession planning," hereafter) is an important financial tool for the successful continuation of family-owned businesses in rural communities. Keeping these businesses going--preferably under local ownership--is often critical for the health of our rural communities. Locally owned businesses tend to have a better feel for the pulse and needs of the community and are usually more active in local civic affairs than are absentee-owned businesses. Locally owned businesses are also less likely to be closed or moved. This most often becomes an issue when there is no other family member available to assume--or interested in assuming--control of the business. If the result is a closure--be it a drugstore, barbershop, food store, movie theater or any other local business--the community loses a local source of supplies or services, and the town suffers a loss to its tax base and economic/social vitality.
One of the best ways to prevent this from happening is to groom employees as future owners. This may even involve the formation of a small, worker-owned cooperative (see the January-February 2009 issue of Rural Cooperatives for more on this topic).
It is critical that rural business owners understand the twofold process of succession planning to include:
1. The transfer of ownership from a financial and legal perspective, and
2. The transfer of skills to their employees.
When transferring ownership, family-owned business owners should strive to ensure that the business will maintain its current status of operation and its economic and social value in the rural community. The business owner should also ensure that experienced and capable employees will be prepared to assume these roles upon the owner's death, retirement or withdrawal.
So, how does a family-business owner plan for a smooth transition?
First, begin planning now, no matter what your age or health. …