Tactical hints for multi-generational business transition.
In the realm of business enterprise, everyone will have to resign at one point or another. If you plan on keeping your company afloat after so many years of hard work, sweat and tears then you may need to read this. A wise and smart business ownership transitioning plan should usually be untouched by emotions.
A good number of realistic questions need to be asked and answered before completing this life-impacting structure. Much like a scheduling a routine physical or creating a will, succession planning is 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. Being pragmatic about the steps involved in the transitioning process will go a long way to save you and your family from any possible future financial catastrophe.
According to a statistics released by Forbes, Less than one-third of family businesses survive the transition from first to second generation ownership. Another 50% don’t survive the transition from second to third generation.
Going by this fact, one will realize that it is quite crucial to diligently think the process through before taking the final decision on whomever you want managing your company after your retirement.
Below are some tested and trusted approach that you can help you position your company to maintain prosperity for generations to come.
Start business succession planning early
Five years in advance is good. Ten years in advance is better. Many business advisers tell budding entrepreneurs to build an exit strategy right into their business plan. The point is, the longer you get to spend on succession planning the smoother the transition process is likely to be.
Open communication with your choice of successor
One of the reasons businesses fail to successfully transfer ownership is because families are not honest with one another. Parents may try to hide some of the financial troubles from years past or shield their children from the hardships they have endured – a natural instinct for any parent – as a business owner. Children may be afraid to communicate exactly what they do or don’t want out of ownership for fear of upsetting their parents. This has the potential to create more problems in the future than the ones you are trying to avoid today. Lay all the cards on the table and be sure all parties know what they are getting into
Look at your family realistically and plan accordingly
You may want your first-born son to run the business, but does he have the business skills or even the interest to do it? Perhaps there’s another family member who is more capable. It may even be that there are no family members capable of or interested in continuing the business and that it would be best to sell it. Examine the strengths of all possible successors as objectively as possible and think about what’s best for the business.
Prepare key documentation
You will also need to prepare all of the necessary documentation, including financial documents for the company, contracts for outside vendors and customers, and corporate documents. As part of your key documentation will be the laid down policy of how you want the financial profits of the company to be shared. This is very important in order to avoid future discord within the family. You may also consider transferring both management and ownership to your chosen successor and make other financial arrangements to benefit your other children. Again, be thorough and cover all the bases here, with the guidance of your professional advisors
Train your successor(s) and work with them
How can you expect your successor to take over and run your business successfully if you haven’t spent any time training him or her? Your family business succession plan will have a much better chance of success if you work with your successor(s) for a year or two before you hand over the reins. For solo entrepreneurs, sharing decision making and teaching business skills to someone else can be difficult, but it’s definitely an effort that will pay big dividends for the business.
Talk to an expert
Transferring ownership is complicated, and because there are so many emotions tied to the process it can be exhausting for all parties. Having a business planning expert who can mediate between parties and take a pragmatic look at the business and its needs will increase your chance for a positive long-term income.
How does the Kathy Chan Real Estate group help?
Here at Parc Bay Real Estate, we have successfully worked with a good number of multi-generational clients to create a plan that fits the needs, goals and objectives of every party involved. My agency and a team of trusted advisors work to adopt a holistic approach to family business problems, understand the interaction of individual, family and business, and have developed a minimum scope of knowledge from each of the disciplines that could contribute to family business solutions. We will help you draw all the pieces of the puzzle together into a harmonious whole, ensuring that you, your family, and the business will be well served.
To start planning early means start planning today. Visit our service page to get started!