Some business owners build a business with an eye to selling it to the highest bidder. Many entrepreneurs, however, hope that the business they have built will remain within the family. When members of the founding generation retire, with proper business continuation plans in place, they can take pleasure in knowing that the firm is in good hands. Such happy endings, however, cannot be taken for granted. Many family businesses don't survive past the second generation. Why?
- No Qualified or Interested Family Member: Some firms do have an employee who could run the business, but that person is not a family member. Perhaps the children are too young, have other interests, or lack the founder's drive, feel for the market, or technical skills.
- Limited Access to Capital: A child may not have the same relationship with the bankers, suppliers, bonding company, and customers as the prior generation.
- Death, Disability, or Retirement: Senior management may leave before the next generation is prepared to assume control.
- Current Income versus Growth of Firm: The retired generation may be concerned about income to meet living expenses. The children may want to retain profits to grow the business. That could spell trouble.
- Estate Taxes: A closely held corporation is an illiquid asset. Taxes are assessed based on "fair market value" at a date of death. Fair market value is what a "willing seller would accept from a willing buyer." Often, however, there are no willing buyers. Other assets, including the firm itself, may have to be liquidated to cover the estate taxes due.
Three Steps to Take
It is up you to set the planning wheels in motion. Here are a few ideas of how to begin:
- Clarify Your Goals: What would you, as an owner, prefer? To work in the business for as long as possible? To retire at a certain age? To provide for your children the lifestyle and status you have enjoyed? To reward key employees who have helped you build the business?
- Consider the Children: Who wants to continue the firm? What are the feelings of the others? Who, if anyone, has the needed abilities? What training is taking place now?
- Appoint a Project Manager: No person is likely to have all the skills needed to make your vision of the future a reality. Your attorney, CPA, banker, and insurance professional are all essential members of your strategic planning 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.
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|Keeping Your Business in the Family|