“The store was like my grandparent’s house,” said a longtime friend when recalling his childhood visits to his family store in Manhattan For years, his family’s business was something he considered important, but not essential to his life. However, when the possibility of watching his family’s business disappear came close to becoming a reality, he chose to enter the business. His intervention proved fortuitous-several years later, the business was more successful than ever.
Many family businesses are not as fortunate when it comes to ownership and management succession. A recent survey found that nearly half of all family businesses lack a clear succession plan. Additionally, a third of those with plans have one or more incomplete components which can lead to confusion and conflict over the planning owner’s intent. This lack of planning threatens not only the existence of the business, but the continued health and closeness of a family.
To avoid such situations, the owners of family businesses must prepare their businesses and families for the eventual transition well before it actually take place. Consideration must be given to issues of who will own the business and who will manage it. It is also important to consider the tax implications of transferring a business to members of a younger generation and how to preserve a business’s family ownership structure. Beyond the actual mechanics of ownership transfer, business owners should also consider how such transfers will affect those not selected to be involved in the management and ownership of the business. A complete review of the senior family member or members’ estate and financial planning should take place alongside any planning for the business.
The components of a successful succession plan vary depending on the specifics of the family and business involved. Certain considerations are essential. First, the plan must lay a groundwork for the transfer of the ownership of the business to the next generation. Who will own it, when they will take over and how they will pay or not pay for the ownership interests are key questions that must be answered. Second, the management structure of the business should be determined while the current managers are still in charge. Preparing the next generation of business managers to take over and illustrating what is expected of them will greatly enhance their chance to succeed. Finally, businesses should consider using a succession plan as a means to establish a conflict resolution policy and a policy regarding future transfers of ownership interests.
The benefits of preserving a healthy family business are numerous and far outweigh the work that must go into preserving its health. In financially uncertain times, family-owned businesses provide their owners with stability and protection from outside forces. Because they are typically not subject to the whims of investors and other outsiders, the business owners are vested with control over their affairs and, being family, they tend to share the same values with one and other. These shared values greatly reduce the amount of turnover of the management a business can face. Just as important as the benefits that family ownership can bring to a business are the benefits a business can bring to its family owners. Family-owned businesses become the centers of their families and can serve as a tremendous source of family pride and unity.
As a major component of the world economy, with nearly 70 to 90 percent of the global GDP tied to family owned ventures, the continued health of family businesses is important to all of us all. For family business owners, the importance is a more personal affair. Proper succession planning allows families to continue to thrive both in the workplace and at home. Without a solid plan, problems in the business sphere can inevitably seep into the family dynamic. “It’s difficult sometimes because this is my family,” my friend told me regarding his concerns for the future. “At the end of the day, I have to have Thanksgiving with these people.”
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