Most families create their wealth through private business enterprise. However, owners of family businesses are aging. A recent study suggests that approximately 60 percent of all business owners are over age 55 and nearly one-third are over age 65.
Whether you are considering selling the business to a third-party buyer or moving the business to your family’s next generation, here are 5 important tips that you should consider well before the eventual business transition.
Tip #1 – Plan Early
A business plan should be put in place at least 3-5 years ahead of any expected transition. A good first step is for everyone to recognize the value of early business transition planning.
Tip #2 – Build an Experienced Transition Team
A good transition plan requires expertise in many different areas. Attorneys, accountants, bankers, financial planners, and insurance advisors can all provide helpful planning expertise. It’s important to select a team of professionals who have worked with similar businesses and have experience in transition planning, navigating family dynamics, and understanding the financial and emotional aspects of business transitions.
Tip #3 – Develop a Written Plan and Timeline
It is important to make a written plan with clear objectives and a timeline for implementing each stage of the transition. Each objective should include a series of “action steps” that keep the transition moving forward. It is critical that clear criteria be used to evaluate the success of the plan and that the timetables are being followed.
Tip #4 – Train Your Family Successors and Work With Them
You cannot expect your family to take over and operate your business successfully if you don’t spend any time training them. Your transition plan will have a better chance of success if you train your family successors for a couple of years before you “hand over the reins.” This is often difficult, but it’s definitely time well-spent and will make a big difference for a successful transition.
Tip #5 – Look at Your Successors Realistically
You may want your oldest daughter to run the business, but does she have the business skills - or even the interest - to do it? Maybe there’s another family member who is more capable. It may even be that there are no family members capable of or interested in continuing the business and that it would be best to sell it. Examine the strengths of all possible successors as objectively as possible and think about what's best for the business.