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