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Passing Along the Family Business
Small businesses tend to follow a generational
pattern. That is, a highly motivated individual who has a lot of good
sense and initiative starts the business. They build it up, and perhaps
involve other family members, such as their spouse, siblings and
children, which may become part owners of the business.
Not all businesses stay afloat for the entire working life of the
founder. But if they do, the founder commonly wants the enterprise to
continue in a healthy state and would also like to share some of the
proceeds with the family.
Unfortunately, this simple aim is much more difficult to achieve than
you might think. Only about 30
percent of businesses are passed on to the second generation, and only
about 15 percent make it to the third.
Businesses fall apart or are taken over by outsiders for many reasons.
It may be difficult to get good, cohesive management out of a family
group, where some members are only marginally concerned with the
business. Poor communication within a family can lead to destructive
infighting. And tax laws in some countries can have a savage impact when
an owner dies.
Passing on a business comes under the general heading of 'succession
planning'. Where succession planning is successful, a business owner may
be able to retire with a secure source of income and see successors
continue to run the family business well. Family conflicts will be
minimized and the tax demands on the business will not threaten its
existence.
Succession planning is a process. It needs to begin long before family
members find themselves in a crisis meeting, saying something like,
'Okay, Bob can't continue to run the business with his heart problem.
Who wants to volunteer?'
A smooth transition must be organized well in advance. For one thing,
the successor must be groomed and given the skills that will enable them
to be a good CEO. And family issues such as rivalry and jealousy need to
be addressed in a calm and deliberate way, and a resolution found that
will be acceptable to everybody. It will be extremely difficult to come
to such a resolution when a business is in a crisis and family members
are dealing with deep grief.
Succession planning also needs to be handled in a way that will benefit
the business. For example, it may not be a bad idea to bring outsiders
onto the board of a family business. They may bring crucial expertise.
It may be better if some members of the family stay at arm's length and
surrender voting rights. Because good business decisions need to be well
informed, and not all family members will have time to do their
homework.
Forward planning can give family members a fair assessment of how much
time they should invest in a business, given their likely long-term
rewards. This will minimize the chance of bitterness and recriminations
when ownership and power is transferred.
But the key thing about succession planning is that it involves highly
complex legal and accounting issues. Professional help should be sought
at an early stage and a full range of options should be talked through.
Internet resources include:
Americas:
Business Owner's Toolkit - Planning for Succession
Centre for Family Business
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