I asked San Antonio business consultant John Dini, one of the nation’s leading experts on business ownership and exit planning, for his advice on handing down the family business. As the author of Hunting in a Farmer’s World, Beating the Boomer Bust and 11 Things You Absolutely Need to Know About Selling Your Business, Dini literally “wrote the book” on succession planning. He recommends that Baby Boomers and other business owners with an eye on retirement carefully consider the following questions.

1. What will your role in the company be?

Dini says that many owners “hand off” their companies without a real succession plan, especially when the business is destined to stay in the family. In those cases, ownership is often passed on while control remains—officially or unofficially—in the hands of the original owner, which can cause significant problems.

“Discuss what you want your level of activity to be, and what your successors think it should be,” he advises. “Keeping your old office, or showing up every day to ‘just check on things,’ cripples your successor’s authority and ability to implement his or her own vision for the business.”

2. Is your successor ready, willing and able to handle change?

Many second-generation owners are indoctrinated to run the business exactly as they were taught. However, as Dini points out, that may not be the best course of action.

“Markets, products and technology evolve,” he says, recommending that you consider: “Is your successor ready to evolve with change? And does he or she have any experience in dealing with major disruptions, such as the loss of a key customer or employee?”

Also understand that you cannot replicate your own mix of skills and talents in a successor, especially when it comes to the experience and “battle scars” you’ve gained along your entrepreneurial journey.

“It’s often impossible to train a successor as a ‘utility infielder’ who can handle finance, operations and sales,” Dini explains. “If key employees are critical to supplement certain areas of running the business, they should be included in the succession plan with long-term incentives for retention.”

3. Does the company have the financial strength to thrive without your personal signature?

“As a business expands, an owner’s ability to personally guaranty its liabilities usually grows with it,” cautions Dini. He recommends taking an honest, comprehensive look at how your departure will affect finances from both the business and personal sides.

“Can the company maintain necessary credit facilities if you don’t back them up? If not, consider talking to your bank about how to limit your exposure,” he advises. “Many parents have lost their savings because they stopped watching the business until the calls started coming from its creditors.”

Thank you to our colleague John Dini for this great advice. Additionally, we’d like to offer one more consideration, from our perspective as tax professionals:

4. Is your business entity flexible enough to minimize the taxes and maximize your security when transferring your business to your successor?

We often work with Dini and other professionals to help our clients fully prepare an exit strategy for a smooth transition when handing down a family business. It takes a delicate balance of financial, legal and business planning to make it work. Contact us with any questions you may have. For more great nuggets of wisdom from John Dini, visit his website at www.johnfdini.com.

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