Building a business takes hard work. Keeping it in the family takes careful planning.
Whether you are the entrepreneur who started the business or are the successor who has kept it profitable, you have your work cut out for you.
According to a Yakima Herald article, titled "Passing the baton: 6 challenges for family business succession," the odds are simply not in your favor.
Only 30% of family businesses retain family control into the second generation, and this statistic plummets to 5% in the fourth generation.
About 88% of these business owners believed their businesses would remain in the family in the future.
Obviously many of their family members, key staff and employees were disappointed.
Succession challenges do not discriminate on types of business. Planning is essential.
Do not be in the 75% who does nothing.
Fortunately, the original article provides list of issues to consider in advance.
Any time family or money is involved, there are chances for hurt feelings and discord. Some people avoid planning primarily to avoid conflict.
Can you handle the truth?
Conflict is coming now or later.
Your odds for a successful business transfer increase significantly if the tough decisions are made before you are dead.
Set an appropriate salary for the work your heir apparent does before he inherits.
Just because he will inherit the business, this does not mean he should be paid inflated wages before the business is his.
Why could this be a problem?
First, the child may become arrogant and lazy.
Second, other employees can become frustrated and resentful.
Interest and Involvement.
You may have several children in differing degrees of involvement with your business.
You will need to address expectations.
Do those actively involved expect a greater share than those who are passive?
Communicate why you divided the shares the way you did.
As times change, so does technology. The next generation of owners may have new ideas.
Although the core values should remain the same, you should be open to advancements.
Do not put this planning off.
Illness and death can come without warning.
Get a plan in place now, while you are still healthy and capable.
Regulation and Taxes.
Transferring a business can be expensive, especially when taxes are involved. (Remember that uninvited "partner" in Washington, D.C. who requires more and more of what you earn?)
You need to leverage the work of an experienced estate planning attorney to alleviate this monetary burden and create the best plan forward for you, your loved ones and your business.
You may have built your business on your own, but you will need help to ensure its future success.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Yakima Herald (May 20, 2016) "Passing the baton: 6 challenges for family business succession"