Let’s face it, family businesses are important to the economy. According to Forbes, family businesses are responsible for 60 percent of the jobs in the United States and 80 percent of the new jobs created. It is also estimated that family businesses account for 50 percent of the gross domestic product of this country.
Unfortunately, family businesses also suffer their share of problems, especially when it comes to the continuation of the business, because of the intimate histories and complicated cultures inherent in many of these businesses. As a result, only one-third of them survive to the second generation.
Making a successful transition
In order to maximize the chances of the family business living on after its current owners have moved on, it is recommended that the business follow a three-step process to arrive at a succession plan that will work:
• Create objectives and goals: At this stage, the current management of the business should develop a vision for the business and outline its goals and objectives as well as the needs of the business in the next generation.
• Establish a business succession plan: In order to carry out these goals, the person(s) serving in the next generation of owners and managers need to be identified. Experts recommend choosing persons that have a vision for the business and can best suit its needs, which may mean consideration of candidates that are not family. Additionally, the current management needs to identify whether the next generation needs any support or training from current managers or owners in order to successfully run the business.
• Plan the transition: Once the persons to take the business into the future are identified, it is time to discuss the mechanics of how the business will be eventually transferred to them. There are many options to do this from an outright purchase to a gift or behest. If the business is to be sold to the new owner, the options for financing the transaction (i.e. self-financing, a loan from an external party, etc.) as well as the details of the deal need to be decided. Once the details have been arrived at, a timeline laying out the implementation of the entire transition plan needs to be agreed upon.
Transitioning a family business is a very complicated process and requires a consideration of several complex questions. As a result, to further increase your chances of a successful transition, it is important to have the assistance of an experienced business law attorney. Having helped many small businesses with succession issues in the past, the attorneys at Dunn Lambert, LLC know the issues that your business faces and can recommend a course of action that will give the transition of your business the greatest chance of success.