Historically, only one-third of North American business owners successfully pass the baton to the next generation. The top two reasons why family business owners don’t retain their businesses are: no qualified successor and lack of planning.
The Life Cycles of a Family-owned Business
- Beginning
- Generally there is a shortage of capital and profits
- Abundance of labor
- Generally there is a shortage of capital and profits
- Build up Capital and Management
- This occurs over time
- End Cycle
- Owners want to take capital out
- Reduction in labor
- Bring in next generation to restart business cycle
You need a strong team when considering transferring of the family business. Selecting the team members includes: family, accountant, attorney, banker, investment and insurance advisors. During this process it will be important to have strong communication between all parties and to establish goals such as developing a timeline. The key financial readiness indicators include your assets and income as well as the decision of where you want the business to go. If the succession/transfer involves a farm business, do you want to transfer the business to on-farm heirs or non-farm heirs and what assets and income will you have left?
There is also the emotional readiness indicator which has a big impact if you are ready to let the many hours of labor, management decision making, and assets go. It is so important that you have something else to do such as hobbies that you enjoy and volunteer work that adds meaning to your life.
Visit with one of our consulting and planning experts when considering developing a succession plan.