You considered a lot when you set up your family business, from obtaining financing to selecting an entity. Your children were no doubt a factor as well. Some of it was good; with a family-run business, you can keep control between those you love. Some of it may have been concerning; will it cause tension in the family? Will kids have the desire to take over?
That was just the beginning. Operating a business is an ongoing adventure, with new issues that you will have to address. One thing in particular that is important to remember is to consider the future; understanding the ins and outs of succession will do a world of good for your business.
Keeping the business in the family
It is a nice thing, keeping a business operating within the family; however, statistics tell a sad story. Did you know that as high as 70 percent of family-owned businesses fail to survive to the point of succession? Or that 73 percent of family-owned businesses do not have a solid plan of succession for when the day finally comes?
A part of the problem is a lack of maintenance and care for the succession plan; not that they don't necessarily care, but rather that business owners may not quite understand how complicated it is.
Even for family business owners who have made sure to come up with a successor plan already, they fail to keep it up to date. Just 22 percent of these business owners have managed to update their succession plan in the past two years, and considering how fast life can go, it is inevitable that holes will begin to form in an outdated successor plan.
Your business could face many pitfalls if you are not prepared for your successor to take over. For instance, is everyone in the business ready for a transition? We are speaking not only to the financial readiness of everyone involved, but also their mental readiness. If your successor is not prepared to take the reins, it could do serious harm to your business and its employees.
While preparedness is a major factor, hemming and hawing over the transfer could make things worse in the end. You are in the prime of your business life, and waiting too long to pass the torch could see new hurdles erected that block your progress.
Old age, sickness, a family emergency, etc., all of these could see you less able to pass the company on. It is also possible that the wait could cause your business to become less valuable; this not only makes it a greater challenge for your successor to revitalize the company, but also limits the money you can safely take with you as part of your retirement.
Having a good succession plan won't fix every problem a business faces, but it sets the foundation for success from one generation to the next. Have a business succession plan in place. Update it - or at least review it - regularly.