JDWalls & Associates

It is a sad fact.  Around 70% of family owned businesses do not survive the transition to the second generation.  How can this be?  A major factor is the lack of succession planning engaged in by small business owners.  Succession planning in any small business can be difficult but even more so when it is family owned.  There are always options to sell to a third party, but most people want the business to stay in the family.

It is a mistake to assume that Junior will automatically take over someday when you are ready to retire.  Is Junior prepared for this?  What if you develop health problems and can no longer work before Junior is ready?  What if you die before you retire?   Here are some tips to help you begin to address these issues and create a succession plan for your business:

1.        Start early:  At least five to ten years in advance.  The best advice is to put it in your initial business plan.  Sure it will change, but at least there is something in place.

2.       Be realistic:  Does Junior have the skills to run the business?  Does he want to run the business?   Sometimes it is necessary to go outside the family in order for the company to survive.

3.       Do not get hung up on dividing everything equally:  Ownership and management are two different things.  There are options which can allow the proper management of the business while still taking care of your family.

4.       Train your successors:  If you currently do not have anyone in the family or the business who has the potential for succeeding you, your options are limited. 

5.       Get outside help:  Lawyers, accountants, financial advisors:  Most of these folks can provide help and facilitate this process. 

Putting off succession planning is the worst thing you can do.  It is a recipe for not only chaos but for the business you worked so hard to build to become another casualty statistic.