Family business succession planning isn't easy. Here are 4 tips for smoothly handing off the business to the next generation.
While every business owner needs an exit strategy, family business succession planning can be particularly tricky. That's because many family business owners simply assume their kids will take over the business one day but stop short of actually developing a plan for making that happen. A vague assumption of what the future will look like without strategic conversations, training and planning isn't enough to keep your business thriving into the future.
Each family is different, which means that each family business handoff is different. On one extreme, some parents are unwilling to relinquish any control of the business, preventing the younger generation from gaining valuable experience and possibly even leading them to lose interest altogether, according to CPA Mike Castle, owner of small business accounting firm Bond, Andiola & Company in Flemington, New Jersey. On the other extreme, some parents decide they're ready to retire and just dump the business in their kids' laps, leaving them to figure it out on their own.
Whether you're ready to get out now or don't think you'll ever be able to leave the business behind, it's within your power to make a smooth transition. But doing so takes careful planning. Consider Castle's four tips for successful family business succession planning.
Find Common Ground
"Parents and children need to sit down and talk about what the transition is going to look like, and make a plan that works for both," Castle says. "I have one client who's been saying for years he's going to hand over his business to his son, and the son is now 64 years old. Some adult children won't wait that long."
Rather than dragging out the process or leaving your kids in the dark, talk about your plans and listen earnestly to their ideas. Search for a balance between your needs and theirs not to mention the business's.
Set Realistic Expectations
Both parents and children must be realistic about the amount of time they plan to spend in the business throughout the transition, as well as the amount of income and the benefits they can expect for that time. In many family businesses, parents may keep a hand in the business while taking more time off and living a "semi-retired" life.
That said, Castle has seen unrealistic expectations turn into arguments and bitter feelings among family members. Discuss whether the business will continue paying for cell phone bills or vehicles for parents who are retiring, for instance, and how much vacation time really makes sense.
"Transparency is very important when dealing with a business transition, especially in family businesses, in which transitions tend to be more emotional," Castle says.
Think about establishing a rough road map for the transition, for example a three-year plan that has your child taking over accounting in year one, sales in year two and announcing the transition to clients in year three. This sets expectations and opens lines of communications around how each stage of the transition is going.
Consider a Trial Period
Some families have found success in allowing their kids to start running one section of the business launching a new product line or managing one customer segment, say before they take the reins of the entire company.
"This allows the younger generation the ability to try out their own ideas or strategies with that piece of the business and see how it works," Castle says. "It's always good for the kids to work in the business or the industry before they take over the family business, but it's not a bad thing for the kids to get experience at different companies as well before going back to the family business."
If you've never sat down and thought through the details of handing off your business, start now. Even beginning with a few informal conversations to gauge your children's interest and expectations is a solid first step toward family business succession planning.