For business owners, planning for their own exit from the company and other big changes is not an easy thing to do, for a variety of reasons, and yet it is essential to ensure the long-term success of the business.
Planning for contingencies like death, disability, divorce, and retirement can take many different forms, and long-term plans for the business are an important factor in determining the appropriate succession plan. For many business owners, keeping the business in the family is an important goal, but families don’t always set up an adequate plan for doing so. According to experts, around one third of family-owned businesses are carried on to the next generation, and only about 12 percent make it to the third generation. By the fourth generation, very few businesses are still in the family.
In some cases, perhaps many, it isn’t necessarily a bad thing that a family business ends up not staying in the family, but sometimes this happens because of poor planning. To be effective, succession planning needs to be done early and on an ongoing basis. Planning for business succession, like estate planning, should not be seen as a task that can be checked off and never given another thought. Business succession planning is ongoing, and it must be returned to periodically to review whether it is still appropriate.
Planning to keep a business in the family can be much more effective if a business owner works with experienced professionals who understand how to plan for contingencies that may affect the business. In our next post, we’ll say a bit more on this topic.
Bloomberg.com, “Keeping It in the Family,” Lewis Braham, April 21, 2016.
Think Advisor, “Advising Business-Owning Clients on Succession Planning,” Danielle Andrus, April 21, 2016.