Family business succession planning may not be a very popular topic to discuss, but it certainly isn’t one to ignore. Mom and pop businesses are thriving and are gaining recognition as a source of economic growth in the country. In fact, over 50% of the country’s gross domestic product comes from family businesses. Likewise, around 35% of Fortune 500 companies are controlled by the families who created them.
Unfortunately, not every family business survives the transition from first generation to second-generation owners. According to a survey by PWC, only 52% of existing family business owners are confident that the next generation of owners can run the business on their own. Because of this, they now recognize the importance of family business succession planning.
What is a Succession Plan?
A succession plan is created to identify who will continue managing the business when its current management team retires. In family business succession planning, the founders are usually replaced by their children or another family member who was groomed to take over the business.
The Importance of Succession Plans with Family Business
Because family businesses have close histories and complex structures, both on the management and production side, outsiders may find it hard to understand how it works. Intra Family disputes, as well as estate and inheritance issues, may also hinder the successful transition of a family business.
Family dynamics may also work against business’ successful continuity, but with the proper planning, most problems can be prevented.
The Secret Sauce of Successful Family Business Succession Planning
– List the Business’s Goals and Objectives
The first and second-generation owners should create a collaborated vision for the business. Family business succession planning process starts with pinpointing the goals and objectives of the business. This step begins to define where the generations are in alignment, and where they aren’t and begin the discussions to come closer together.
– Create the Decision-Making Process
Ensure that the succession plan is relayed to everyone concerned. Write down the whole process to make sure that everything is documented. Remember, each person is different so the interests and ideas of one family member may be different from the other. To prevent factions, you must create a solid dispute resolution method that can fairly address these problems in the quickest way possible.
– Build the Succession Plan
With all the goals and objectives discussed and agreed upon now create a plan for how the business would get there. Identify the successors, support-roles, and non-active roles for each family member. Don’t forget to identify the support or consultancy role that may be given to retired family members or previous generation owners.
– Create an Estate Plan for the Business and the Owners
Address potential taxation problems for the business, including transfers upon death, divorce, or sale. Consult an attorney and accountant for legal and tax advice around these areas.
– Develop a Transition Plan
There are various options to transfer the business. Discuss options with an attorney and your accountant to understand the implications of each option. Create a timeline for the transition plan, so that the next-generation owners will have time to prepare themselves for their new role. With the proper family business succession planning, a company’s life may be extended to last through several generations. Don’t lose your legacy because you haven’t thought about your options. Implementing these steps will preserve the legacy of your family business.
While all businesses should consider succession planning, a family business has unique challenges, that being the family. But if you start the succession planning process as any business would, you can add in the extra ingredient of the family more easily.
Download our 7 Steps to Successful Succession Planning. You’ll get the steps, a template of how to start, and a worksheet to begin the process.
