Friday, June 02, 2006

Successful Family Business Succession Planning

Category: Business Law and Planning

I came across this interesting statistic about successful family business succession planning from Succession Planning and the Family Owned Business - Perspectives - Inside INdiana Business with Gerry Dick:

"The United States Small Business Administration reports the odds of surviving a transition from the founding generation to the next are a mere 30 percent. The figures are even more uninspiring for the third generation with survival rates at less than 20 percent. Given these odds, it makes sense for family business owners to begin treating the succession planning process much as they would treat retirement and estate planning. While each business succession is unique, there are some common misunderstandings that can bring added complexity to the transition of a family owned business."

I have found in my own practice that numerous issues can prevent a family business transition, including the value to the senior generation, the transfer of control, equalizing children who are not in the business, all against the backdrop of the emotional entanglements family members have.

The article highlights and expands on some points that can make family business succession planning more successful:

  • The child wants to run the business and is capable of running it
  • The family treats the succession like an arm's length transaction
  • The heir has the liquidity to buy out the owner or the willingness and capability of borrowing from institutional lenders
  • The transaction acknowledges parties beyond the seller and buyer
  • Even though it’s in the family, the sale is a “business transaction”
  • The seller’s involvement after the sale


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