There are plenty of challenges to running a successful family business. But they can look like a hop, skip and a jump compared to the challenges associated with passing your family business along to your children or other relatives.
Only 33 percent of family owned businesses survive the transition from first generation ownership to the next, according to an article in the Vail Daily.
Why so hard?
In some cases, it is because no one in the family is interested in taking the business over.
But more often it is because there no good succession plan in place.
To come up with a workable succession plan, you must collect the thoughts and opinions of all family members as to who wants to be involved and how. You must know who wants to do what kind of work.
You must also discuss retirement goals for family members, cash flow needs and the goals and needs of the next generation of management.
Key decisions, of course, include who is going to be in control and who will eventually own it.
Your succession plan could be based on setting up a family limited partnership, where you, as the general partner, control day to day decisions, but over time sell off shares to family members. Eventually you give up control to who is ultimately going to run it.
Or you could set up a buy-sell agreement, which allows you to name the buyer — it could be one of your children — and establish a price. Then your child could buy a life insurance policy on you and eventually use the proceeds to buy the business.
But there are many strategies that can be considered. Best to consult an attorney with expertise on business succession and business buying and selling.