When you start a family business, the dream is to be able to pass it on to your kids. You want to give them something to be proud of, something that will support them and their families and keep the family legacy alive for generations. Family business succession planning is an exciting endeavor, and it also can determine how well your business does in the future after you are gone. What you want to do is set your kids up for success.
The key is to make a plan and stick to it.
We’ve heard all kinds of stories about family business succession planning gone wrong. By far the most common problem that arises in these situations involves one or both of the parents not wanting to let go. It often happens that they don’t afford their children or other family members enough respect and autonomy to run the business, and the business suffers for it. Sometimes the harm to the family relationships is irreparable.
Want to avoid this? Here’s how to ensure the successful transfer of your family business.
Train Your Successor
You probably already know who you want to take over the business after you’re retired. But just because this person has the aptitude and skills to be your successor doesn’t mean that he or she will be ready to take over your business in the near future.
Training your successor often takes years, maybe even a decade, to complete. What you need to do is document your training process and set goals for yourself and your protégé. Just because the person you’ve chosen has the necessary skills and a genuine interest in taking over shouldn’t mean that he or she doesn’t need to earn their way. However, you also need to show good faith and provide evidence that the transfer will actually happen in the future. Nobody wants to spend years working toward something that ultimately fails to bear fruit.
Keep the Transaction Process Professional
Many families that pass the family business down to the next generation handle the transaction process in a way that is more relaxed than if they had sold the business to someone else. This is a mistake. Successful family business succession planning requires that you keep the transaction process professional.
What this means is that you need to hire legal help to make sure that you don’t cut any corners. Nondisclosure agreements, valuation documents, and negotiations all need to be completed. Sometimes, because whoever started the business has put countless hours, not to mention blood, sweat, and tears, into building the business, the owner thinks that the business is worth more than it is valued at. If this happens, an appraiser can help put a real number on a fair price.
Make the Transition to Your New Role
We’ve often seen mom or dad sell the business to one of their children and then try to keep running things from the sidelines. This is never a good idea and often leads to strained relationships. As the seller, you need to learn to let go. If you want to continue to be involved with the business, you can create an agreement that allows you to do so—either in a new role within the business or as a member of the board of directors or advisors.
Need help with family business succession planning?
Get in touch with us if you want to sell your business to a family member. Contact us today to learn the next steps you need to take.