If you own a family business, you may often wonder how to continue the business in future generations going forward. But, handing off a family business to the next generation can be the toughest and most critical challenge family run businesses face.
When a family run business works, it can be one of the greatest gifts. There also comes a time to recognize the need for succession planning. Succession planning can be a great way to maximize opportunity and create a multi-generational institution that embodies the families mission and values long after they are gone.
Only about 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond.
The statistics reveal a disconnect between the optimistic belief of today’s family business owners and the reality of family companies to survive through the generations. Research indicates that family business failures can essentially be traced to one factor: a lack of family business succession planning.
Family Business Succession planning is a process requiring planning, teamwork, and constant re-evaluation.
A typical succession plan has two elements:
- Transfer of power
- The transfer of assets
When you transfer power, you give the control over the business’s operation to the individual (or individual’s) that you feel are the most suited to succeed you. When you transfer the assets, you transfer the wealth concentrated in the business to designated family members.
The major issues confronting a family business owner seeking to transfer power to successors are:
- Selecting a successor
- Managing inter-generational conflict, different agendas and goals
- Providing adequate training for the successor
- Timing the transition.
There are many estate planning tools you can use to transfer your business. When you begin the planning process there is a lot to think about. You’ll have to decide whether you plan to retire, keep the business until you pass away or sell the business outright. You may have children or other family members whom you wish to continue the business after you are gone, but there may not be anyone suitable to take on the business and therefore you look to sell to an outside party.
Business succession planning must include ways not only to en-sure the continuity of your business, but also to do so with the smallest possible tax consequences. Remember, you’ll want to consult a tax professional as well as your estate planning attorney to explore all strategies.
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