Who Will Succeed You in Your Business?
Lee Rosenberg, CFP | April 1st, 2009For some family-owned businesses, the matter of succession is a non-issue. The future owners are already working for the company and the only question revolves around timing. But for others there is a quandary. Either family members express no desire to carry on the business or have different educational backgrounds or skill sets than you. But regardless of the circumstances, it remains critical to plan ahead to hand over the reins to someone.
A recent survey found that 39% of all family- owned businesses will change hands in the next several years either due to death or retirement. Yet it’s been our experience that less than half have done adequate planning for continuation. There are many reasons:
1. Denial- who wants to confront their own mortality or acknowledge that they are nearing the end of their career?
2. Procrastination- you have every intention of taking care of this, just not yet
3. Indecision- perhaps there are siblings involved and you don’t want to ruffle feathers or create ill will if one is better prepared than the other to take over
4. The Economy- you want to wait until business picks up or resumes to normal levels.
When times are tough, it’s hard to convince the next generation that the business remains viable
5. Valuation- you want to sell or pass down the business but don’t know how to establish its value
These are all understandable concerns, but not reason enough to delay the inevitable. Here are the three reasons you must address this issue, regardless of timing or circumstance:
1. For your own sake, you want an exit strategy so that you and/or your spouse are assured of a retirement income and a viable plan that determines the distribution of earnings.
2. After all the time and money you have invested, maybe over a lifetime, surely you want to preserve the business and allow the next generation to grow it and take it new directions rather than having it close permanently or be bought by a company that won’t have the same level of passion that you do
3. Most importantly, by creating a succession plan, family is not left with the burden of making difficult decisions without your wisdom and guidance. Too often families are torn apart fighting over the business because your desires have not been expressed. In addition, if employment opportunities are denied family members either because their involvement is not spelled out or the business is unexpectedly sold to strangers, the ill will can be long lasting.
Don’t put off this discussion any longer. Start the ball rolling by talking to family members about their interest/opinions, then bring in the professional advisors. Ask your financial advisor for recommendations.
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Tags: business exit strategy, business plan, entrepreneur, family business, family owned business, lee rosenberg, professional advisors, small business
About the Author: Lee Rosenberg is the Co-founder of ARS Financial Services, Inc. As a Certified Financial Planner with more than 34 years of solid financial expertise. Lee is a registered representative of Cadaret, Grant & Co., Inc. He was also named one of the top 25 Independent Financial Advisers in the US by Rep magazine.
