A whopping 90 percent of businesses across the nation are family-owned. Odds are this means you either know someone who is part of a family-owned business or are involved with one yourself. While the casual nature of working with family definitely has its perks, it’s important to take the necessary steps to protect your business for the future.  Approximately three quarters of such companies have no succession plan in place.

Here are 10 smart questions that will not only get you started on the right path before or during the transfer process, but may also bring to light some other important questions for you to discuss with your Attorney.

1.  Does your succession plan reflect your business goals?

These include your, and the company’s, long-term strategic objectives as well as short-term goals. Are you seeking to exit just as the company needs capital? What are the market drivers, and how might the sale or transfer of business ownership position the company for future growth?

2.  Does the succession plan align with your personal objectives?

In addition to serving the best interests of the business, succession plans need to be closely coordinated with your estate planning, tax management and wealth management goals to ensure that your personal plans (i.e., for a semi-working retirement or one of travel and relaxation) and financial needs are met and the benefits of family financial security are provided.

3.  Who are the potential successors, and do they have the requisite skills — and interest — needed to lead the company?

The planning process should account for the ability and interests of the successor — a family member, a company insider or a third party — to manage the business and reconcile any personal differences between potential successors with equal standing, such as children or siblings. If the intended successor is positively inclined to lead the company but lacks the requisite skills and competencies, strategic decisions can be made to build competencies. In the event that a viable in-house successor doesn’t exist, an outside newcomer can be recruited for the role.

4.  Can designated successors afford a deal? Does the plan correctly account for the successors’ financial capacity to acquire the company?

If necessary, can you help them fund the acquisition of the company without shortchanging yourself — through either an equity-sharing arrangement, in which you temporarily retain partial ownership, or a seller financing plan, such as payments over an extended term? How the seller deals with this depends upon whether he or she is selling to family members or others. Generally, sellers have more flexibility with family members. If the deal is implemented over an extended time frame, how and when will control pass to the new owners? Sometimes, one believes that the buy/sell agreements deal with this, but that is not the case. Often the agreements have the underlying assumption that the cash flow will not be an issue. This is where those agreements often fall short.

5.  What is included in the sale?

The assets of a business are not only financial assets but also intellectual property, contacts, and other tangible and non-tangible assets. The valuation of the business and deal structure should reflect all of these assets. The name of the business and the quality of its product, particularly if it is a family name, is a valuable asset included in the sale. Recall, however, that in transitions within the family, quite often, the desire is to minimize the value for gift tax purposes, and often deals are structured with this minimization in mind. Steps should be taken to ensure that the foundational principles of the business and reputation of the founder will be honored by the successor whenever possible.

6.  When is the right time to sell or transfer the business?

In real estate, the mantra may be location, location, location. But when it comes to selling a company, it’s about timing. Can you wait until conditions are more favorable — especially if the company’s value is down because of the economy, market conditions or other external factors? In some cases, delaying a transaction for even a few years may yield a far greater premium. Delay, however, may not always result in the desired outcome: Dot-coms that sold in 2001 typically received far less than those that had sold two years earlier. Moreover, any appreciation may be offset by potentially higher tax rates, reducing the net results of a sale. In a rising tax environment, you should consider the additional growth that is needed to equalize the value after taxes. Remember, if the business is to be transitioned to family members, one may want to consider transitioning when the value is lower, because of the gift and estate tax ramifications. Another key factor is that most often, no one tells the investment story of a business better than the founder or current owner/operative. Selling a business apart from this influence can be costly.

7.  How will the valuation of your business be determined?

Commonly used metrics in the valuation of a business include financial revenue, profits and net cash flow, but could also include recent sales of similar businesses, return on capital and other key measures. If the valuation doesn’t reach an amount that you agree is fair or desirable, time may be needed to take actions that address the gap.

8.  Will a prospective acquirer or merger partner be a good fit?

How knowledgeable is the purchaser about the business and the industry it’s in? What is the purchaser’s management philosophy, and what type of culture will result? How will cultural changes impact employees? Will key employees be motivated to stay with the new owner, and what are the consequences if they do not? Generally, selling to buyers with industry experience results in a lower-risk transaction and transition

9.  Will customers stay with the new owner?

Many companies, especially if they are still owned by the founder or have been under the same management for many years, depend on strong personal relationships. Others are so closely identified with the owner that their continuation is inconceivable without him. One option is for you or members of your family to remain personally involved, if only temporarily, to facilitate a transition or “transfer” credibility to the new owner. This is often compensated as a consulting or short-term employment contract.

10.  What details and specifics should be included in your succession plan?

Is there a clear and definite timeline for action steps, milestone events and completion of the transfer? What level of due diligence should be conducted up front to assess whether a potential successor is interested, qualified and likely to manage the company?

Maybe you’ve selected the successors for your family business… Or maybe you are still in the earliest stages of planning your exit into the next phase of your life. Whatever the state of your succession plan, now is the time to start thinking about the details that need to be decided upon.