How to make sure your family business is left in the right hands
Family businesses are the backbone of the American economy, but when it's time to pass the business to the next generation, thorny issues can arise, such as sibling rivalries and tax implications.
Published in NY Daily News
You would think mom, granddad or whoever started the business might anticipate that and make sure any potential complications are straightened out in advance.
But in reality, 73% of family business owners say they don't have a documented succession plan in place, according to a survey by PricewaterhouseCoopers.
And that's unwise.
There are a lot of aspects to an effective succession plan and you can run into numerous snags if you aren't careful.
One of the biggest issues is that business owners don't give themselves enough time to implement a plan. Succession planning isn't something you can do in a week or two. To be effective, you need to begin planning years in advance.
There also often is a question about whether younger family members even want to take over. They may not have the same passion for the business as the person who launched it decades ago.
In small communities, adult children may have moved to bigger cities and may not want to return.
Perhaps that's one reason the majority of family businesses disappear after the first generation. Just 30% survive into the second generation, according to the Family Firm Institute.
Whether the younger generation is ready or not, there's an upswing in the number of family businesses being sold or passed on to someone else.
In fact, a lot of wealth-transfer planning in general is happening because baby boomers are reaching retirement age.
Any family business that's considering a succession plan should:
If you wait until you are on your deathbed and decide you want to transfer your family farm, succession planners are going to be limited in what they can do to help you.
For example, it can take years to implement tax structures to reduce tax effects on the transfer.
Who do you want to be your successor? Will it be someone inside or outside the family? Is transferring wealth to family members the goal, or is having enough money to retire the objective?
Family members should be involved, of course, but also professionals such as an attorney, a CPA, an investment advisor and active members of the business's management.
Choose a succession planner who will be around a while.
Succession planning is a long-term endeavor. It's best to avoid an attorney who's likely to retire before the plan is fully implemented.
On occasion, a business owner goes into succession planning with clear-cut ideas about how it should all play out. But when attorneys start asking questions that plan might be revised or abandoned.
And that's OK. The goal should be to determine whether the initial plan will work from a practical standpoint. A good attorney will steer a family business owner to the best outcome, even if it's not what they initially had in mind.
[Content provided in this article should be used for informational purposes only and is not intended to be a substitute for professional advice. Always seek the advice of a relevant professional with any questions about any legal decision you are seeking to make.]