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8 Ideas To Strengthen Your Family-Owned Business
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Article 2: Plan For Succession
Succession planning isn’t easy. It isn’t always a pleasant task. But it is the lifeblood of family firms that want to pass down ownership of their businesses to the next generation.
An unprecedented 39 percent of U.S. family businesses will experience leadership shifts in the next five years, as CEOs retire or semi-retire, according to the 2003 MassMutual/Raymond Institute American Family Business Survey.
Of the CEOs expected to retire or semi-retire within the next five years, 58 percent have chosen a successor, but 42 percent have not. Those in the latter category are risking the future of their family firms.
“Failure to plan effectively for leadership transitions is one of the major reasons families often lose control of their companies after the first or second generation,” says Joseph H. Astrachan, a Raymond Research Fellow and principal researcher for the survey. “While the survey findings clearly show the die-hard commitment of many family-business leaders, they also point up the difficulty that’s likely to occur when the company postpones dealing with the inevitable.”
Poor or non-existent succession planning has resulted in the end of many family businesses, causing severe financial problems and even tearing families apart.
“Succession is an inevitable decision for every family business,” says Daniel L. McConaughy, director of the Family Business Center at California State University Northridge. “No one lives and works forever. Nationally only a third of family firms make it to the second generation, and part of that low rate is due to a lack of proper succession planning. Improper planning can also result in excessive estate taxes or the need to sell the firm because of inadequate financial resources.”
It’s never too early to start succession planning. And the more time you give your company to complete the process, the better.
“Planning is a process,” says Robert Friedman, a CPA in Bridgewater, N.J. “There are numerous non-financial considerations to be addressed that are often overlooked. Nearly 19 out of 20 businesses don’t have a written plan. Most small-business owners are so wrapped up in the day-to-day management issues that they can’t find time to address the issues that are critical to them.”
To preserve your business for future members of your family, start working on you succession plan now.
Hire attorneys and/or accountants and/or specialized family-business consultants. Meet with professional advisors who can initiate the process objectively, without all of the emotional baggage that family members carry into the business. Over time, the professional you hire will get to know all of the players, understand you industry and your business and help you develop a plan of action for succession.
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