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Importance of succession planning for privately held businesses

- John Mickelson, managing partner Midwest Growth Partners, is IowaBiz's blogger on succession planning. Read more about him here. 

Many business owners do not properly plan for their business in the event of their retirement, disability, or death. Reasons vary, but they are often as simple as “It won’t happen to me” or “I will get around it eventually.”

In fact, this is one reason why only a third of family businesses successfully make a transition to the second generation.

Key decisions must be made about the future direction of the business. Those decisions include how ownership will be transferred, if the business should remain in the family or be sold to a third party, and how estate taxes can be minimized. Not only will this have an impact on your heirs' financial future but, perhaps more importantly, having a plan in place gives your loyal employees peace of mind. 

Midwest Growth Partners has seen the importance of succession planning first-hand in central Iowa businesses. We purchased a company in Adel last year from the estate of the founder. 

His adult daughters – who lived outside Iowa – inherited the company upon the unfortunate death of their father. While it was a wonderful asset for the daughters, they had no intention of being involved in day-to-day operations and were faced with the burden of figuring out what to do with the business and the future of its employees. They also had to navigate the complicated and time-consuming process of selling a business.

Ultimately this story had a happy ending and Midwest Growth Partners was able to partner with the company president and purchase the business. Unfortunatel, many stories end with company assets being liquidated and employees losing their jobs.

The sooner you can put a plan in place, the better. It is important to include those closest to you in the planning process, which can give insight into which family members would be willing to be a successor to the business. This can help with identifying those who need to be trained to carry on your business the way you want.

Attorneys, accountants, and others can also help you through the process. The end result of having a succession plan can smooth the ownership transition and make it easier for everyone involved. This will help ensure that the business you have been working to grow will have a lasting legacy after you are gone (which hopefully will not be for a long time!).

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