By Tony Boschetto, CPA, Director, Business Advisory Services, Accounting Management Solutions
Family businesses are often considered the backbone of the American economy. Not only do they account for 50 percent of the US gross domestic product, they are also responsible for 60 percent of the nation’s employment and 78 percent of new jobs created. With so much at stake, it is troubling to read the results of a CNBC Poll that found that only 20 percent of family-owned business owners had any succession plan in place to ensure a smooth management transition.
How is this possible? It seems counter-intuitive that for all of the planning, ingenuity, sacrifice, and hard work that goes into building a company, the average American entrepreneur is woefully under-prepared for protecting his/her business in the event of disability, retirement, or death. Having a succession plan in place ensures that your company will be in good hands when you leave, and it helps everyone—your employees, clients and suppliers—make the transition more smoothly. There is no one size fits all, but here are some five thoughts to consider when mapping out a succession plan for your family-owned business:
- Start early. Experts recommend that you make your exit strategy anywhere from 10 to 15 years before you plan to retire. The more time you have to communicate your plans and set expectations, the better.
- Involve your family. Rather than making assumptions, talk to the appropriate members of your family to get a clear understanding of their interests as well as aptitudes. Do they want the business to continue after you leave? And who will lead? How will this affect the rest of the family? Anyone who has seen The Godfather knows what can happen as a result of family or sibling rivalry. Your succession plan can help smooth out some of those issues and eliminate any resentment long before an unfortunate fishing accident happens.
- Choose and train your successor. If you’ve decided that your business will continue after you leave, you need to decide who will take your place at the helm. It is equally important to put a training plan in place so your successor is ready for the transition when you are. Much like an apprenticeship, working alongside you will ensure that your successor has the necessary skills to be successful. It will also give you the confidence to gradually relinquish control of the business, avoiding what is known as the “sticky baton syndrome.”
- Work with the right advisors. Passing your business on to the next generation has numerous financial and legal implications to consider. Make sure you are working with reputable advisors—lawyers, retirement specialists, accountants, estate planners, insurance agents—to help you navigate through the red tape and get the greatest tax advantages.
- Create a timeline. Every seasoned entrepreneur knows that in business, timing is everything. A formal timeline not only keeps everyone on the same page, but also helps you to manage the administrative elements. Your advisors can help you create a checklist of all the key activities and documents that need to be completed for the transfer of your business, and a timetable for completion.
If you are like most entrepreneurs, your family business is more than a company. It is where you’ve invested your blood, sweat and tears, and represents a legacy for your family. If you hope to pass your family business on to the next generation, nothing is more critical than putting a good succession plan in place now.