Succession Planning for Family Businesses
Baby boomers are an entrepreneurial lot. The population born between 1946 and 1964 started more businesses than any generation before them. In fact, nearly 70 percent of all businesses are owned by baby boomers.
These family businesses — large and small — are a gigantic force in the economy. That’s why economists are carefully watching what is happening to them now as boomers reach or approach retirement age.
The process known as “succession planning” — mapping out what will happen to the family business when the owner is ready to step away — has never been more important than it is now. And it applies to more than boomers. In the Rockford region, 75 percent of businesses are family-owned. All of them should have succession plans, no matter the age of the owner. It is never too early to give this important process some thought.
Most families want their business to continue. They have struggled to keep it afloat and make it profitable through good times and bad. They want to see the business succeed long after they have stepped away and don’t want to see that go down the drain.
They also feel a responsibility toward their employees, whether they number half a dozen or several hundred. The work force has been loyal and helped create success. It would be a shame to lose their experience and skill, and an even greater heartache to take away their jobs.
That brings us to what can be the greatest challenge in succession planning — maintaining family relationships while deciding who will take over the businesses or if the wisest choice is to sell it or have someone outside of the family oversee it. These days, most families do not force their children into careers they don’t want, so there is a very real chance that no one in the family feels the same passion for the family enterprise that the parents did.
Open, respectful and honest family communication is necessary throughout the succession process. If there is tension between siblings because of other issues, it will only be compounded when the family business is on the line. That is one area where professional advice can be extremely helpful. An outside expert source often can describe options and the ramifications of each choice in a way that all family members will accept.
For example, if the business is going to one child, what about any other children? How will they get an equitable share of the business or its value? A professional adviser can lay out options and clarify the monetary implications of each.
Succession planning is vital. More than one family business has had to close shop because succession was done haphazardly without attention to key aspects of transition.
While we strongly advise taking advantage of professional expertise in this process, the owner should not overlook those closest to him. Often, the owner’s spouse can offer valuable insight and suggestions regarding the family members and the business.
For professional advice, look for someone who has experience in the complex matter of succession.
Smart business owners look at succession not as retirement, but as a chance to pass the business on to someone who can take it to new levels. Individual circumstances determine whether that will be a family member or an outside individual or firm.
In either case, it represents an opportunity for the owner to see the little company that he started grow into an enterprise stronger and more profitable than he, perhaps, ever imagined. That is one of the positive, exciting parts of business succession, and one that should not get lost in the myriad family, legal and tax issues that need to be resolved.
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Gary Kieper, CEPA, CFBA, is President at Kieper Sales Sales Solutions.