Of the 24 million family
owned businesses in the United States, only about 30% will survive into the
second generation, according to The Family Business Institute in Raleigh, N.C.
That's a sobering statistic for business owners whose crowning achievement is
the company they built. But those who begin succession planning early –
approximately a decade before retirement--stand a better chance of passing the
business on to their children. Consider the following six steps:
1. Decide on a viable
successor. You may dream of your son or daughter sitting at the CEO's desk, but
before you hand over the keys to the company ask two key questions: Are any of
your children qualified to run the business? Are they truly interested in
succeeding you? It's hard to remain impartial: An outside family business
advisor can evaluate the strengths and weaknesses of any prospective candidate
and help throughout the succession process.
2. Mentor the next leader.
Just because your daughter has led the sales team for 10 years doesn't make her
ready to manage the entire operation. Owners should prepare successors over
several years by letting them work in different areas of the company,
introducing them to important business contacts, involving them in key business
decisions and gradually relinquishing responsibilities to them.
3. Keep all employees in the
loop. To avoid hard feelings and confusion, everyone in the company needs a
clear understanding of who will take over the business and how the transition
will work. Hold scheduled meetings with family employees and critical
non-family staff to review the succession plan, head off any problems and
discuss other business issues.
4. Create a clear timetable
for succession. Without set dates for specific events, employees may be
perplexed by the chain of command and owners may linger long after they
should've retired. Some dates to nail down include when you will retire and
when you will transfer ownership shares.
5. Settle on a
post-retirement role. Can you envision totally walking away from the firm, or
do you want to serve as a consultant for a specified time?
6. Coordinate
estate-planning goals with the succession plan. It's likely your investment in
the business is your largest asset. Therefore, several issues need to be
addressed, including the possibility of an estate freeze to limit future
capital gains in conjunction with a life insurance policy to pay projected tax
liabilities. In addition, determine a source of income for your retirement,
such as an individual pension plan or a retiring allowance paid by the company.
– Courtesy of the National
Federation of Independent Businesses. For more information on this topic, visit
www.nfib.com.