How to Stay Together While Moving Forward: Anticipating Issues in Succession Planning for the Family Business
By Natalie Evans, CPA, CGA, LPA, Partner
Passing an established business from one generation to the next is invariably difficult. When you add the complexity of family dynamics, it can add another thick and complicated layer to succession planning for your family business.
Transitioning Your Business Between Generations
So, how do you avoid the traps of failure during transition between generations?
Research has shown that approximately 30% of family-owned businesses survive into the second generation, 12% will survive into the third, and only 4% into the fourth. Beyond that, the decline continues. A common situation is one where “dad” has built the family business from the ground up over the last 40 years, poured everything into it, and feels it is an integral part of who he is.
He is building his legacy, and intends to pass it on to his kids. Let’s also assume that the kids want to be part of the business, which isn’t always the case. Even with willing and educated parties, a transition can be can fail if done without careful consideration and planning.
First Step in Succession Planning
An important first step is acknowledging that you need help. Unbiased, experienced external advisors can provide valuable advice because what they see happening with one family, they have likely seen happen to many others.
Who should those external advisors be? Succession planning should involve accountants, lawyers, and financial planners to ensure that the transition is handled properly for legal, tax, and financial purposes.
There are also professional business succession coaches who can add value by helping to facilitate the succession process for the family with the other advisors.
Family dynamics will leak into the business regardless of even the best efforts to keep them separate. An experienced coach can delve into these issues with creative solutions.
So, what can this unbiased advisor offer? For example, a family business with multiple members taking over during succession can be difficult for the business to support all at once. That is an issue that has the potential to be disastrous for both the family and the business, and should be addressed by everyone involved at the planning stage of succession.
The person who built the business has a great overall sense of the business and can jump into any aspect to make decisions as required. It is common for the next generation to come into the business and learn only certain aspects, such as finance, marketing, etc.
Typically, they have not had the opportunity to develop the same overall knowledge of the business so can’t participate independently in decision-making as easily. This can result in the failure of the business.
Your trusted business advisors can help you anticipate the pitfalls and offer solutions to support the business, while preventing the family from falling apart.
Don’t wait until the last minute. Engage your group of advisors well in advance of the planned transition. Doing so will give you and your family the best chance for success.