Does your family-owned business have a succession plan in place? If you don’t, you aren’t alone. Despite family firms making up 90% of all business enterprises in the U.S., 47% of owners who want to retire in the next five years say they don’t have a successor.
Passing the business to the next generation can be as challenging as starting the business for some family owners. The Wall Street Journal reports obstacles including a lack of communication between generations, a reluctance to let go, and a failure to plan ahead.
If you intend to pass your business on to the next generation, developing a business succession plan should be top of mind when considering the future of your company. While you may not be able to see a day when you want to stop working, eventually, you will want (or need) to retire. Rather than waiting until that time comes to decide what will happen to your business, it’s wise to develop a succession plan early on.
Succession planning for family-owned businesses can be complicated primarily because of the emotions and close-knit relationships involved. Many people are uncomfortable when it comes to discussing topics involving death and finances, but to set yourself and your family up for success in the future, you’ll need to implement a reliable plan.
Management vs. Ownership: There is a Difference
If you’re considering transferring your business, it’s important to first realize that management and ownership are not one and the same. For example, you may decide that you’d like to transfer the management of your business to only one of your children while transferring equal shares of ownership to all of your children, whether or not they are actively involved in the operation of the business.
Regardless of how you define management and ownership, you will want to work closely with financial professionals and lawyers who specialize in business succession planning. They will be able to offer advice and strategies focused on the details of your business, including how to potentially minimize taxes when the transfer does take place. This is crucial ̶ failing to have a proper tax strategy in place is one of the greatest mistakes you can make when it comes to business succession planning and your own retirement.
4 Family Business Succession Planning Tips
For many businesses, family is the primary consideration of succession planning. From the future management of your company to ownership details and tax liability, your decisions will ultimately have an impact on one or more members of your family. Here are 4 ideas to keep in mind during this transition:
Tip #1: Begin Planning Now
While five years is a good time to start planning, 10 years before to your succession is even better to begin implementing details that may be involved. You may have been advised to build an exit strategy directly into your business plan, which is beneficial in the long run. The greater amount of time you are able to spend on succession planning, the smoother the transition process will likely be.
Tip #2: Involve Family Members
Creating a succession plan quietly on your own (and then “announcing” it to all those who will be affected) can be a recipe for disaster. Instead, involve your family members early on in the process so that you can discuss and strategize together. This will also give your loved ones time to decide if they do want to be involved directly or if they would rather pursue other interests. Less than one-third of families agree about the future development of the business, exactly one-third are willing to give up control of the business and just over one-third of families agree that the business objectives align with family goals, Forbes reports, citing a recent Deloitte Family Business Survey. You need time to prepare for whatever your loved ones decide related to the business.
You may also discover during this time that some family members are passionate about certain components of the business, while others are more capable of handling other aspects. Most importantly, by involving your family members, you may realize that a succession plan that keeps the business in the family is not the best decision after all, and that, ultimately, it would be best to sell. Communication is key to creating and implementing a plan that will help your business thrive while keeping your family dynamic strong.
Tip #3: Train Your Successors
You’re more likely to achieve success with your transition plan by working with your successors for an ample amount of time before you hand over full responsibility. Beyond the day-to-day duties, also consider involving your successors in strategic planning and decision-making five or 10 years out. While it may be difficult to give up some control while you are still very much “in charge,” allowing your successors to be a key part of strategic initiatives will greatly improve their ability to continue to handle this after your exit.
Tip #4: Acquire Outside Help
A variety of professionals, including lawyers, accountants, financial advisors, etc., can help you organize and develop a successful succession plan. With their expertise, you may find yourself analyzing options and considering details that you wouldn’t have thought of otherwise. By partnering with professionals that specifically specialize in small business and family business succession planning, you’ll get the added benefit of having someone who is able to facilitate the process of working through potential issues.
Do What’s Best for the Business
As you evaluate your future and the future of your business, it boils down to doing what is in the best interests of your business. Family business succession planning can be complicated and emotional because it requires you to make difficult decisions with your loved ones in mind. By connecting with professionals and developing a process that outlines the details involved, you’ll be able to ensure an effective, more efficient and successful plan to help your business continue to succeed for years to come.
The team at C.W. O’Conner Wealth Advisors works with business owners and their families to help you make the right decisions for you, your family and your business. We can help with ownership transactions, liquidity events and buy/sell agreements, as well as other business advisory services. Call us directly at 770-368-9919 or email Cliff at [email protected] or Kevin at [email protected] to learn more.
 The Wall Street Journal, “The Tricky Task of Handing a Family Business to the Next Generation,” July 16, 2020.
 Forbes, “How Family Businesses Can Navigate the Greatest Wealth Transfer in Human History,” Sept. 10, 2020.