If you’re like many family business owners, you likely created your company to blaze a path forward for your family. Unfortunately, however, statistics show that most family-owned companies don’t last more than a generation. Not sure why? Often it’s the lack of planning when it comes to what’s next for the company. In a recent Pricewaterhouse Coopers survey, inattention to family business succession planning strategies was one of the most serious issues facing these businesses today. In fact, just 23% of the companies surveyed had a solidly documented plan in place. Without this key step, the next generation may not be ready to lead, and other family members involved may not support the leadership choices made. As a result, the business can be seriously damaged when one generation hands the company down to the next. How can you prepare your company for change in a manner that ensures success? A better approach to planning can help.
What is Succession Planning?
If you’re unfamiliar with the concept of succession planning, it’s a fairly simple one. It’s just laying out the events, timelines, and operating procedures that are standard for your company. Any business owner with a successful company should consider a succession plan, but it’s particularly important in family-owned businesses. That ensures that the best interests of the business are carried out from generation to generation. Moreover, it should happen sooner rather than later, as it can take years to help a strong, capable leader emerge to help the business continue in a smooth, transitional fashion.
Making It Happen
There are many possible family business succession planning strategies, but initially, you should establish clear visions, goals, and objectives for the company. Keep in mind that anyone involved in leading the company should be part of this step. Think about retirement goals and cash flow needs for those family members ready to step down and the personal business goals of each of the new leaders who are coming in to take over the company.
The next step is to establish a process by which the company will begin to make all future decisions. This helps to establish exactly what might happen when decisions must be made, particularly if those decisions involve disputes among family members. At this stage, it’s best to go ahead and determine your successor. Most business owners plan to have the next generation, like their own children, take over the business. It’s possible, though, you have a much younger sibling or even a grandchild who is ready to take over. No matter who will take the reins, though, choosing a successor is a difficult task, and you must take the company’s best interest to heart.
From there, you’ll want to establish the succession plan itself. Identify both who will own the business and who will manage the day-to-day operations of the company. Moreover, make it clear what each family member’s role will be, even if they won’t be playing an active part in the company. Finally, make sure to note any support the successors may require going forward. Be sure you formalize your standard operating procedures at this point so everyone involved understands what must happen. You may even want a daily checklist and training guides for new employees.
A business and owner estate plan should be the next step. This helps to address tax implications involved for the owner or the business once the transfer of ownership takes place. It also helps to minimize those tax implications and prevent delays when it comes to things like stock transfers. It can also help to build a fair buy-sell agreement that reflects the value of the company itself. As part of this process, you’ll need to have your business valued. Consider hiring a professional appraiser so no financial errors take place.
The last step in the process is to build a transition plan. Maybe a purchase is the right way to hand the business from generation to generation. Maybe gifting it to the next generation is a better step forward. Either way, designing the transition plan carefully can help to push the transition forward when it’s time to do so.
Whether all of these steps apply in your case or not, there are a few key things to remember. First, be sure to work with your successor as far in advance as possible. It will help you plan for those unexpected problems. Next, be sure your expectations throughout the process are realistic. You have an undeniable emotional connection to your company, and that can’t be laid out in a succession plan, so stay as realistic as you can throughout the process.
Finding the Right Family Business Succession Planning Template
Because family business succession planning strategies can be so complex, many people look to templates to help make it happen. The three-circle model is one option. It’s a visual representation of the interaction and impacts that the three involved components – ownership, management, and family – have on each other as the business moves from one generation to the next. There are some simple succession planning templates available online, but you want a professional’s help. We’ve worked with many family-owned companies just like yours to help simplify succession planning. If you’re looking for an easy process, we’re here to help. Contact us today at 1-561-933-4728 to learn more.