BEATING THE ODDS
Succession Planning for Family-Owned Businesses
On average nationwide , 12 percent of all family-owned businesses will not survive past the second generation of ownership . When asked why that ’ s the case , researchers are likely to point to another statistic that states only three out of every 10 businesses will actually put a formal succession plan in place . While this information may appear to be discouraging , these statistics actually provide business owners with the insight they need to build a successful multi-generational business . This article will point you in the right direction .
Where to Begin
All those impacted by the success or failure of your business should be educated about what options are available . Because the longevity of the business hinges on the buy-in of multiple family members , these family members should also be given input throughout the succession planning process . Therefore , once you make the decision to start the process you should plan a time when your entire family can come together and review personal goals and objectives as well as the company ’ s current position in the marketplace .
Needless to say , the dynamics within a family-owned business are complex . For example , there may be family members who are fine candidates for leadership roles who may not have the knowledge , ability , passion or leadership to make it happen . Or , there could be family members who are passionate about the business but unwilling or unable to take on leadership roles . History and emotions can also result in poor decisions or no decisions , which can doom the business or family relationships before the transition even occurs . It may be wise to bring in an outside business advisor to objectively assist in the company ’ s succession discussions and planning .
After meeting with your family and assessing their feedback , you should be able to determine a realistic course of action . For example , will you need to identify and train future leaders from within your family unit or will your company ’ s longevity be more secure with an outside successor ? Or maybe , after speaking with your family , you ’ ve come to the conclusion that the best option is to transition your business to a new owner . Either way , once you ’ ve gauged the interest of your family members and assessed their willingness and ability to lead , you will finally be in a position to put your plan in writing .
Other Considerations
If you are ready to put a succession plan in place to help your business outlast common transitional hiccups , consider addressing these following points in your succession plan as well :
• Business Valuation – One of the most critical components of your succession plan will be the business valuation . To ensure a favorable outcome for all parties , you ’ ll want to work with a trusted valuation consultant who is highly qualified to determine your company ’ s true value while sorting through tax considerations and timing concerns .
• Tax Strategy – Speaking of tax considerations , it ’ s important to note that the sooner you put a plan in place , the more options you have to help minimize your tax liability . Valuable tax strategies exist to help business owners maximize the value of the business during the transition phase , a professional financial advisor and tax strategist can help you identify these opportunities .
• Communication Strategy – Open , transparent communication is arguably one of the most important aspects of a successful transition strategy . Believe it or not , your team can probably sense a transition is imminent even before it ’ s even communicated . Consider outlining your communication plan , including who needs to know what and when information should be conveyed .
• A Team Approach – You are more likely to achieve the success you want when you have a team of business-minded experts on your side . There are a lot of nuances to consider when transitioning a business from one owner to another ( even when they are members of the same family ) and a solid team approach will make sure your “ i ’ s ” are dotted and your “ t ’ s ” are crossed . Your succession plan should identify your team ’ s players and what role they will play during the succession process .
Need help determining your succession planning next steps ? Give me a call for a free consultation .
by : Mark Fearon
CPA , CGMA , Principal 122 Fourth Street NW
P . O . Box 1020 New Philadelphia , OH 44663-5120
( 330 ) 308-6894 mark . fearon @ reacpa . com