As a third-generation owner of a 73-year-old family business, I know the value of succession planning. A Tool Shed was founded in 1945 by my maternal grandparents, and when my grandfather passed prematurely in 1964, my grandmother became the sole owner.

My father, who had only been working in the business for two years after having completed his service in the Army, took over the daily operations and began to grow the business. Upon the advice of our board of directors, including our banker, company stock was created, and my grandmother distributed the stock among the next generations of Pedersens. Life insurance policies for my parents and grandmother were put into place to cover the increasing cost of estate taxes.

Thanks to our succession planning, the second-generation owners took over and continued the growth of the business for decades to come.

Several years later, we started planning for the next generation to take over. We put in place buy-sell agreements between the three brothers and their spouses, took out life insurance policies to cover the purchase price of the stock if needed, and wrote wills and living trusts for the distribution of assets.

When three of my grandparents and my father passed away unexpectedly in 2008, followed by one of my brothers in 2010, the preparation helped prevent a difficult time from becoming devastating not just personally, but to our business.

In 2013, I purchased my youngest brother’s shares and my mother gifted me the few shares she still had in the company, completing the transition to the third generation. My wife and I are already planning for the transition to the next generation with buy-sell agreements, life insurance policies, wills, and living trusts in place.

Whether you’re planning on selling your business or passing it on to the next generation, succession planning increases the availability of experienced and capable employees that are prepared to assume these roles as they become available.

3 tips for a successful transition:

  1. Start before you think you need to. Accidents happen. Paperwork takes time to process. Having your plan in order and your documents completed will make protect you and your family when the unexpected happens.
  2. Work with your lawyer and financial adviser. You’ve developed a lifetime of expertise in running a rental business; work with experts in law and finance to ensure you’re maximizing the value of what you’re leaving for your successors.
  3. Review regularly. Family dynamics can change, with death, divorce, and other factors potentially coming into place. Re-evaluate your succession plan at least annually to ensure you’re not entrusting someone you no longer trust with the future of your business.