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A Succession Plan Ensures Continued Success of Your Texas Family Business

Whether it's a third-generation family Texas ranch or a new Texas -based technology firm you started from scratch, you've worked hard to make your business successful and you'll want to take steps to ensure that it remains a vibrant source of income for your family long after you're gone.

The key to creating a strong succession plan for your family business depends a lot on family dynamics.

Do you have more than one child interested in taking the reins of the family business? Has there been a divorce in the family that's left a former spouse holding stock? How do you make sure all family members reap their fair share of profits from the business?

There's a good reason why only a third of all family businesses are able to sustain success once a new generation takes over. Sibling rivalries, disputes over business decisions and an unclear vision for the future have doomed more than one family business.

The key to maintaining family harmony and ensuring that your business continues to thrive is succession planning.

The earlier you begin planning, the better. Five to 10 years before your retirement is not too soon to establish a plan. That gives family members sufficient time to adjust to their new roles and will create a smooth transition.

Creating a succession plan oftentimes requires making hard decisions. Your first-born child may expect to lead the family business in your absence but there may be another child with better business and management skills who would be a more appropriate leader. Remember, you want your business to succeed in your absence.

This may require some intense dialogue among family members and egos may be ruffled but it's important that you make decisions not based on emotion but on practicality. Once you've reached your decision, make sure you communicate that decision to all stakeholders.

Once you've chosen a successor, you'll need to work with him or her for a year or two so he or she has the training to run the business and thoroughly understands your goals and vision for the business.

A succession plan also should spell out ownership in the business. Every family member may not deserve an equal share. A lot depends on their level of involvement in the business. A professional adviser can help you set up an appropriate division of the business.

Even the best-laid plans won't eliminate family disputes. So include a method of dispute resolution in your succession plan.

Finally, make sure your succession plan takes your retirement needs into account. Establish your cash flow needs and review your estate plan to minimize taxes and avoid delays in transferring ownership or stock.

Passing on the family business to the next generation can be a challenge. However, a comprehensive succession plan can help secure your Texas family business for generations to come.

If you have questions about creating a succession plan to protect your family business or whether planning documents you already have in place are still legally effective and up to date with current law, contact our office.

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  • Richard P. Johnson is Board certified Texas Board of Legal Specialization Estate Planning And Probate
  • Wealth Counsel
  • The College of the State Bar Of Texas Professionalism Through Education
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The Johnson Firm, P.C.
2400 Lakeside Blvd.
Suite 120
Richardson, TX 75082

Phone: 972-587-7545
Fax: 972-925-9227
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