Many business owners dream of passing their businesses on to
their heirs. But the reality is that lack of proper succession
planning or family feuds often prevent those dreams from becoming a
reality.
Many business owners dream of passing their businesses on to their heirs. But the reality is that lack of proper succession planning or family feuds often prevent those dreams from becoming a reality.
Industry trends bear this out: one-third of family businesses make it to the second generation, and only one in ten continue to exist through the third.
To prevent your family business from becoming a casualty, the California Society of CPAs (www.calcpa.org) recommends that you address some specific questions regarding the state of your business and plans for growth.
Future vision
You’ll need a strategic plan that includes a thorough analysis of the business’s strengths and vulnerabilities and shows where the business is headed. This plan can help you determine the company’s leadership needs. Keep in mind that leading the company into the future may require a set of skills and perspectives that differ from yours.
Stake holders
In planning for your business’s succession, remember there are a number of key stakeholders in addition to yourself. Family members, employees, investors, and, to a lesser extent, suppliers and customers, should all be considered when you develop a succession plan. You’ll need to think about their current and future roles and how the change in leadership may affect them.
Resources
When it comes to succession planning, the most critical resource is time. The more time you have before a successor is needed, the better the outlook for your business.
In terms of resources, you should also consider what professional advisors you might turn to for advice. Often, family discussions are more productive with the help of an objective professional, such as a CPA.
Best succession person
This is the most difficult question for the family business owner and often leads to procrastination. But it doesn’t have to be that way.
Try to take an objective look at how you spend your time and identify the three or four most critical capabilities your business needs. Then determine who could best provide that leadership.
If you determine that your children don’t have the requisite skills or that they aren’t interested in becoming involved in the business, you may need to separate the management and the ownership of the company.
Training your successor
Once you have identified possible candidates, honestly assess what skills and talents the right person needs and devise a plan for how he or she will learn them. CPAs recommend allowing your children to get work experience outside your company for a few years if time permits. This can help them develop the business savvy needed to run the family business.
It’s a good idea to provide possible successors with an overview of the business by rotating them through various job functions with increasing levels of responsibility. You should also introduce the successor to all significant business contacts early on so that he or she can begin to develop personal relationships.
The eligibility requirements for the family business exemption are extremely complex. A CPA can explain them to you as well as advise you on other aspects of planning for the succession of your business.
