Whether you've started a thriving business from scratch during your working years or have taken over and expanded a business that's been family-owned for several generations, you may be concerned about your business succession plan (or lack thereof). In fact, only about three percent of family-owned businesses remain family-owned into the fourth generation. This demonstrates the difficulty of adequate or appropriate succession planning. Fortunately, there are some strategies that may ensure the continued success of your business without pitting family members against each other in day-to-day interactions. Read on to learn more about some family-business succession planning methods that have proven successful for other growing businesses.
What are some common family-business succession problems?
In many cases, a small business owned by a single set of siblings can balloon into fractioned ownership quickly, with cousins and second cousins who have diverse interests (and who may even be living on different continents) made equal owners of a business. Failure to plan adequately for transition between generations and a mechanism to ensure that those who have no interest in business ownership or management (or who would do a poor job at it) are able to receive a fair buyout of their inheritance rights without compromising your business's financial strength and reputation.
While there are a number of business succession plans that don't fulfill mutual goals or are just plain ill-conceived, by far the worst succession plan is none at all. If you don't have a solid plan (memorialized in writing) for passing on your business after you're no longer able to manage its operations, you'll want to consult an attorney to get a better handle on your various options. Otherwise, your heirs could wind up in a prolonged court battle with your siblings, cousins, and other relatives over control of your business.
What can you do to avoid common problems when planning your business-succession strategy?
One way to prevent major battles among your siblings and other relatives who may have a stake in your family-owned business is to select a leader (or group of leaders) outside the family. By bringing in outside experts to control the day-to-day operations of your business, you and your family members will be able to focus on things like wealth preservation, tax planning, and the overall direction of your business without getting into petty squabbles over purchase-order procedures or individual hiring decisions. You may also want to consider the creation of a board of directors that includes a mix of family members and appointed people in order to provide a more balanced view of how to handle problems.