▼ What can I do to prepare my small business for the generation to come?
The process of passing a family business onto the second generation is so difficult that not even a third of them survive. Beyond that, roughly half make it to a third generation. In a normal day in the U.S., 40 percent of businesses are confronted with a change of owners. Those who have founded the companies are struggling to find remedies, but there aren’t many options.
Here are a few possible remedies to this problem:
Sell off the company.
End the business.
Remain as the owner, but contract others to manage.
Keep ownership and management within the family.
The most common causes for failure of the transition of the small business are as follows:
There is no strategy.
The business is missing energy.
The owner lacks the motivation to change the business.
The coming generations are not interested in working with the business.
The main reason for closure is not having a strategy. If planned properly, the business has no reason to worry.
▼ How do I create a successful strategy for passing on my family business?
The family must do the following to attempt to have a worthwhile transition:
- Formulate a strategy focused on the family.
- Formulate a strategy focused on the business.
- Make a Succession Plan, which includes setting dates for retirement and the training for who will follow.
- Make an Estate Plan.
These are the four key points to a successful business transfer. They basically guarantee a transition for years to come within your family when implemented correctly.
What is a strategy focused on the family?
The purpose of the family strategy is to keep a well-functioning business. The policies for the role of the family in relation to the company are set in this strategy. There may be policies for entering and exiting the workforce of the business. It should incorporate the basic guidelines as well as a mission statement that explains what is important to the family. The strategy needs to take into consideration who in the family would like to have significant roles in the business and who would like less responsibility.
What is a strategy focused on the business?
A strategy focused on the business permits each new member of the family to establish their own future for the company. To make sure that everyone has the same idea as to where the business is headed, there is a need to formulate goals. The strategy should concentrate on the future of the company at a particular date.
What is involved in a Succession Plan?
The purpose of the succession plan is to aid those who founded or are in control of the company through the transition. It should explain the details of how to know when the next generation is ready to take over and the process for that transition.
What is contained in an Estate Plan?
The plan for the estate is vital for the company and family. In the end, without a strategy, there will be higher estate taxes than needed, which in turns gives less to the successors. This plan should be in accordance with the succession plan to ensure the transition of the business is done in the most tax effective way.