Perhaps the toughest decision confronting most business owners–family owned, or otherwise–is the need to plan for the succession of their success!
All companies face the challenges of continuity, succession, and profitability, but those issues generally create unique planning and management problems–as well as opportunities–for family owned businesses.
When relatives go into in business together, their individual aims, goals and life visions can impede otherwise sound business planning and decision-making. Absent sound advance business planning, for example, managing day-to-day operations can create problems among some owners. For others, attrition rates among non-family member employees is difficult, while for still others too much success too soon can cause problems if some owners are reluctant to reinvest profits back into the business.
Prudent business owners and professional practitioners wouldn’t open their doors without insuring against the risks of fire, theft or liability. Yet, the death, disability or retirement of a business owner or key employee can put the business at even greater risk. With careful preparation, however, businesses that are so hard to build will continue when the owner or key employee is no longer able to continue working.
Though essential, business succession planning—and the estate planning of which it is also a part–is often delayed by any number of other priorities. The trouble is, as with the purchase of personal life insurance, lack of effective succession plans can doom a business.
Business succession issues are complex and emotional for all involved, especially, as is often the case, when conflicts exist among family members. Not surprisingly, when relatives work closely together, emotions and greed often interfere with business decisions, and each succeeding generation will have its own ideas about taking the company forward — if indeed, it wants to keep the business operational at all. In the end, however, few things are more satisfying for family owned business owners than knowing they have workable succession plan!
Another increasingly prevalent factor for family businesses is the number of daughters and granddaughters taking over these firms. By 2004, according to a study conducted by MassMutual Financial Group and the Raymond Institute American Family Business Survey, woman-owned family businesses had jumped by 37% in the last five years. What’s more, while successful transition has always been key to the ongoing success of family-owned businesses, as Baby Boomers begin retiring, the number of companies facing business succession and personal estate planning crises will likewise increase: ready or not!
Family owned business should consider the value of affinity groups whose members are a select team of key employees with ownership or other long-term interests in their firms’ on-going success. Affinity groups can review the options enjoyed by family businesses, and encourage management to pursue business succession and other types of planning with the firm’s financial adviser and an independent attorney specializing in this field.
Business Succession Planning Options typically include:
- Buy-Sell Planning
- Key Person Insurance
- Business Overhead Expense Insurance
- Personal Life & Disability Insurance
- Estate Planning
Intergenerational succession planning is critical to the continuation of family owned businesses. As indicated earlier, the key to intergenerational planning involves a careful family assessment and a thorough management transition strategy before estate planning begins.
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