Step 1 – Making the Decision
How will you transition your business to the next generation when it’s time to leave? If you are like more than 70 percent of family business owners, you’ve put off making this important decision. And without preparation, most family-owned businesses are not successful in making the ownership change when the time comes. This post is the first of six tips we will provide to help family-owned businesses begin the succession planning process.
Family-owned businesses are the backbone of America. In fact, more than 80 percent of all businesses owned in North America are family-owned. However, when it comes to handing off the business to the next generation, nearly 70 percent of all family firms do not reach the second generation, and 88 percent of family firms do not reach the third generation. And as more and more business owners begin to retire, more and more businesses will face the issue of succession, whether they are prepared or not.
So how can you plan for a successful business transition? To paraphrase Nike, don’t procrastinate – just do it. Succession planning is a critical step to the continued success of your business, but it is also a complex and emotional endeavor. In many ways, it can be like a scheduling a routine physical or creating a will – critical, but not urgent, so it continues to be pushed lower on your to-do list. Resist the urge to put off doing this crucial task.
Making the decision to create a succession plan is the first step in the process for transitioning your business. Set a deadline of nine months to one year to complete your succession plan. Schedule four to eight hours each month into your calendar to work on your succession plan and dive into the process.
Remember that establishing a succession plan won’t tie you to one solution for exiting your business. It is understood that the plan will be a “living document” that you will definitely revise as your life circumstances change and as the marketplace changes. Having this ‘roadmap’ in place will make it easier to react to these life changes – and choose which fork in the road will best meet your needs. It certainly beats being lost in the wilderness with no map or GPS to guide you.
As the old saying goes, failing to plan is planning to fail. Improve the chances that your business will be successful into its next generation by beginning the succession planning process.
In the next issue of Facts And Figures, we’ll look at how your company’s value plays a vital role in succession planning as we work our way through the steps for successful business succession planning.
For additional information about succession planning for your business, please talk to your accounting professional.
You can follow Tim McDaniel on Twitter at TimTMcDaniel.