Succession Planning for Family Businesses
Baby boomers are a notably entrepreneurial generation. Born between 1946 and 1964, they started more businesses than any generation before them. In fact, nearly 70 percent of all businesses are owned by baby boomers. As these entrepreneurs approach retirement, the issue of business transition and family business succession becomes critical. With so many businesses at stake, it’s essential for business owners to think about the future of their companies. Business ownership transfer plans are necessary to ensure the continued success and stability of family businesses for generations to come.
Why Succession Planning Matters
Succession planning—the process of deciding what happens to a family business when the owner steps away—has never been more important. It’s not just for boomers. In the Rockford region, 75% of businesses are family-owned, and all of them need succession plans, regardless of the owner’s age. It’s never too early to start planning for the future of your business.
The Importance of Continuity
Most family business owners want their companies to continue thriving after they retire. They’ve worked hard to build and sustain their businesses through both good and bad times. Their goal is to see their companies succeed long after they’ve stepped away, without watching them fall apart.
Family business owners also feel a responsibility to their employees. Whether the workforce is small or large, these loyal workers have helped make the business successful. Losing their experience, skills, and jobs would be a great loss, adding to the emotional burden of the succession process.
The Challenges of Succession
One of the greatest challenges in succession planning is maintaining family relationships while deciding who will take over the business. Some families may face the difficult decision of selling the business or bringing in someone from outside the family. In today’s world, most families no longer force their children into careers they aren’t passionate about. As a result, no one in the family may feel as dedicated to the business as the parents once did.
Open Communication is Key
Clear, honest, and respectful communication is essential during the succession process. Family tensions, often stemming from unrelated issues, can escalate when the family business is involved. This is where professional advice can make a significant difference. An expert can help clarify the options and consequences of each decision, ensuring all family members are on the same page.
For example, if one child takes over the business, how will the other children be treated? A professional adviser can explain options for distributing the business or its value equitably and help evaluate the financial implications of each choice.
The Role of Professional Advice
Many family businesses have had to close due to poor succession planning. It’s crucial to seek professional advice when planning a transition. While experts can guide the process, it’s also important to consider the perspectives of the business owner’s family. The owner’s spouse, for instance, can offer valuable insights into both the family dynamics and the business.
Viewing Succession as an Opportunity
Business owners should view succession not as retirement, but as an opportunity to pass the business on to someone who can take it to new heights. Whether that person is a family member or an outside individual depends on the situation. In either case, succession provides an opportunity for the owner to see the company grow into a stronger, more profitable business than they could have imagined. This is a positive aspect of succession that shouldn’t be overshadowed by the many legal, tax, and family issues involved.
