Family Succession Tips
Investopedia reports that between 80-90% of businesses in the U.S. are owned or controlled by families. About a third of them are Fortune 500 companies. But this doesn’t mean they are all big corporations. In fact many are small- to mid-sized businesses. Family-owned businesses also account for approximately 78% of jobs created in the United States.
With these statistics it is of paramount importance to create a business plan for family succession. Only a bit over half (53%) of family businesses have a succession plan which could explain why only 30% of all family-owned businesses make it to the second generation, 12% into the third generation and 3% to the fourth and beyond, according to the Family Business Alliance.
Eventually every family business needs to deal with leadership retiring, getting ill or moving on to other things. When a business is a family business, any of these events bring on a list of questions. Who’s going to manage the business? How will ownership be transferred? Accountants and lawyers who specialize in business succession planning can provide invaluable advice about dealing with ownership, taxes, budgeting and the myriad of legal issues that occur when leadership of a family business changes hands.
Here are some quick tips and suggestions to consider when you are dealing with family succession planning:
- Start planning early. If you know a family member will retire in 5-10 years start the process now.
- Involve key members. When the idea of succession first comes up there is bound to be some discord about who should be in charge and how a transition should take place. Invite key members to openly discuss what the best way to approach the transition time will be.
- Groom the future leader. If given the appropriate amount of time, groom the future leader through mentoring and shadowing. Obviously if there was a sudden illness or death this will be a crash course for whomever is in charge.
- Get outside help. With so many businesses run by families, financial advisors and business advisors can be a great asset when transferring the business to a new leader.
- Be aware of potential hurtles. Every change causes problems, none more complex than a family relationship. Plan in advance for sticky family relations that may make a transition more difficult.
- Use the best resources. Along with tax consultants, lawyers and accountants, talk to people who have dealt with succession issues like the Small Business Association. They can help you consider issues that may come up during each step of the process.