Page 22 - BusinessWest October 3, 2022

Giving Them the Business
How to Ensure a Smooth Transition When It’s Time
By Gina M. Barry, Esq.
More often than not, a family busi- ness is doomed by the failure of the owners to plan for its continuation.
Currently, only 30% of family-run companies succeed into the second generation, and only 15% percent survive into the third generation. Fortunately, with proper planning, most busi- ness owners can ensure the continued opera- tion of their business should they become incapacitated or pass away.
Contemplating one’s mortality is not a pleas- ant activity. Most believe they have plenty of time to plan. Some business owners identify so closely with their business that they simply cannot com- prehend the idea of their business being oper- ated by anyone other than themselves. However, when a business owner becomes incapacitated or passes away without a plan in place, the busi- ness always falters and often fails.
The general recommended time to plan for business succession is between the ages of 55 and 65. This timeframe is recommended because most successful business-succession plans include several steps carried out over time. Some succession consultants recommend a three- to five-year plan, while others advocate a five- to 10-year plan. Adequate planning time allows a business owner to test potential successors in different roles and to evaluate their maturity,
commitment, business acumen, and leader- ship abilities. Further, once a successor is chosen, adequate lead time allows the succes- sor to gain expertise so that the business does not falter when the former business owner leaves the business.
More often than not, the head of a family- owned operation chooses a child as a successor. Commonly, more than one child is competent
to step into the parent’s shoes, which makes the selection process even more difficult. When a family member is not available, a key employee often fits the bill. Typically, these employees have already displayed the abilities necessary for oper- ating the business.
The business owner should begin by deter- mining three things: when they want to step away from the business, for how long they want to remain active in the company thereafter, and in what capacity they wish to remain involved. Next, the business owner needs to discuss their ideas about the future with their family, senior management team, and key employees. There- after, the business owner should begin working
“
companies succeed into the second generation, and only 15% percent survive into the third generation.”
with the successor to revise their business plan, thereby allowing them to include any future new products, plans for expansion, growth, or new investment, as well as a candid assessment of the company’s current environment and competitive positioning.
Currently, only 30% of family-run
The business owner will also want to develop a financial strategy for actually stepping fully away from the business. A financial strategy, which is perhaps the most significant activity associated with succession planning, protects the company, the family, and the employees against a monetary burden that could doom the entire process to failure. For example, if a busi- ness owner intends to leave the business to their children, they must
consider any estate
taxes their estate
Continued on page 23
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