Family business. The notion is a contradiction in terms to those who strive to separate these two spheres.
But the arrangement is a natural fit for families that work side by side each day, sharing successes and working through growing pains at home and in the office.
No two families operate under the same house rules, and businesses are no different. Each family business has unique challenges and strengths that the owner must understand before developing strategies and solutions. Often, family business owners work through a unique set of challenges as they strive to balance home and office.
Challenges such as succession planning and estate planning, payroll and administrative concerns, and human relations issues that stretch from delegation of duty to handing over the reins are a few of the obstacles owners hurdle as they nurture the family business to thrive through generations.
A number of small business owners fall into a time trap when succession planning. They don’t start the process soon enough, and when they do, they have not considered the training and preparation required to groom the next company leader.
Here are some common issues owners overlook concerning succession plans, and tips on how to beat the clock and create a strategy that will result in a comfortable retirement and successful transition.
1. Don’t wait too long to plan. We get calls from owners who are in their early- to mid-60s, and they are just beginning to consider the succession concept. Meanwhile, their son or daughter already is 40 years old. They’ve waited too long.
Start planning as soon as possible — in your 40s or 50s. Begin having conversations with interested family members or others outside the organization who you feel will manage the company responsibly and successfully after you retire.
2. Consult a professional. Accountants and lawyers generally do not handle succession planning. Involve a consultant or adviser with experience to help you. Only a qualified adviser will be equipped to navigate you through the difficult task of preparing you to pass your lifelong dream to your successor.
3. Build wealth outside the business early on. Many business owners have all of their wealth tied up in the business. When they reach the point where they want to bring in a successor, their own future depends on the success of the business unless they cash out.
Most often, family members don’t have the cash to buy out the business. Therefore, many owners face the predicament of cashing out and eliminating children from the succession plan or passing the business on to the children, risking retirement and hoping they run the company successfully.
To avoid this dilemma before it destroys your retirement potential, invest in wealth outside the business, such as pension plans and real estate. This way, you will not be squeezed by retirement security risk when determining a succession plan.
4. Involve an outside facilitator and all family members. Emotions often surface when business owners consider succession plans. Passing on the family business is, indeed, a family affair, and all members must be included in the discussion process.
Even if all siblings do not express interest in running the operation, ask for their thoughts. The goal is to avoid the fair vs. equal argument that will crop up if one child is left out of discussions.
Without an outside facilitator to help conduct these conversations, succession planning can become an emotional quagmire. A professional will first lead independent discussions with each family member to get the lay of the land.
Then, the adviser will conduct a family meeting to air feelings and discuss a workable plan for passing on responsibility once the family head retires. A professional objectifies the process and ensures all voices are heard so succession is successful.
Owning a family business can be gratifying, and working side by side toward a common goal can bring families together like no other activity. By planning ahead, you will give your business a great opportunity to thrive through management changes and ensure that the goals of the business remain at the forefront of the efforts of you and your family.
Rich Snebold is co-founder of The Family Business Center at Citizens National Bank. The Family Business Center provides business advice and expertise to privately held companies. Reach Snebold at (888) 829-2162, by e-mail at [email protected] or via the Web at www.familybizcenter.com.
