Keeping your family in business for generations to come.
Like so many other business owners, you’ve worked hard every day to build a successful family enterprise and now the time has come to think about passing it to the next generation.
With so many unknowns—the economy, your family’s interest in the business, easy access to financial backing—planning for the future and getting help from professionals are critical to ensuring your business is around for generations to come.
And although no one wants to think about it, the reality is it all could suddenly fail when you are gone.
Unfortunately, there are many reasons why it might and why family businesses don’t survive past the second generation. Here are a few things that every smart businessperson should keep in mind.
- No qualified or interested family member: Perhaps the children are too young, have other interests, or lack your drive, experience, intuition, or business skills.
- Limited access to financial backing: As you know, it takes time and effort to build the network of relationships you’ve created with bankers, investors, suppliers, and customers. When the time comes, your children may not have had the time to establish the connections that are necessary to keep the business going or growing.
- Death, disability, or retirement: Sometimes, the unexpected happens and you or your senior staff is no longer able to manage the business—long before any of your family is ready to take over.
- Your retirement versus reinvesting in the business: You’ve planned your retirement for many years and are ready to let go of the business. However, you’re concerned about having enough money to meet living expenses. You’ll need the profits from your business to help you out now. However, the new management, your children, think the money should go toward growing the business, just as you have long encouraged them to do. This could spell trouble.
- Estate taxes: One of the great surprises that many children face is the cost of their inheritance. Unfortunately, a business is considered an asset that will be taxed, and, if the capital does not exist to pay for those taxes, it could be subject to liquidation in order to cover the estate taxes due.
It’s up to you to do the planning and ease the transition. Here are a few things you can do to get started.
Three easy steps to begin planning.
Clarify your goals:
In order to understand what you envision for your business and those who will run and grow it, you must ask yourself a number of key questions.
For example, what is more important?
- Managing the shop for as long as possible or early retirement?
- Providing your children the lifestyle and status you have enjoyed or to reward key employees who have helped you build the business?
Think about the kids and what they want.
As a parent, you know you can’t always be sure that what you want is the same as what your children desire. This is particularly true when it comes to handing over the reins to an entire enterprise. You won’t be able to presume anything, and you’ll need to ask yourself and them some hard questions.
- Who, if anyone, wants to take over the family business?
- How do they feel about maintaining or expanding the business?
- Who has the necessary skills and passion to keep things going and growing?
- What kind of training can they undergo to be prepared for the future?
Appoint a project manager to help you.
Your lawyer, accountant, and insurance agent have long helped you grow and protect your business, and they may have even become good friends along the way.
However, although each one of them offers a particular professional service that is essential to creating a successful business, none of them necessarily have the skills to manage everything in way that can make your vision of the business a reality. It’s important that your advisors and financial professional work as a “team”. You may want to give one the overall responsibility of researching the possible strategies and presenting recommendations for your consideration.
As the owner of a family business, you made the company what it is today. Some simple planning can help ensure that your business continues to thrive for many years.
This material is for informational purposes only. Neither New York Life nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.