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Business succession planning should never be left to the last minute

On Behalf of | Jan 24, 2024 | Firm News

The Harvard Business Review has noted that 70 percent of family-owned businesses last only one generation. The low survival rate is disturbing in that family-owned businesses are responsible for approximately 60 percent of total employment in the United States. Moreover, they generate 78 percent of new jobs. Some of America’s largest companies are family-owned such as Koch Industries, Bechtel Group, Chick-Fil-A and candy company Mars Inc. While some companies last but one generation, others remain in a family for several generations.

Crain’s Cleveland Business observes that the Great Recession’s economic storm “submerged many business owners’ plans to retire and sail off into the sunset.” Today, business has rebounded and baby boomers nearing retirement are trying to decide whether to sell their privately owned business to a third party or undertake business succession planning to ensure that the business remains within in the family. If feasible, many business owners prefer to pass their business to the next generation rather than sell to a third-party.

Unfortunately, many owners of privately held businesses who desire to keep the business within the family have not developed a succession strategy. Too many people put off business planning until the last minute and, in some cases, it never gets done thereby putting the businesses’ future in grave jeopardy. Crain’s notes that one study concluded that two-thirds of the owners of privately held businesses are not familiar with their exit options and some 83 percent do not have a written transition plan.

According to the Pepperdine University’s Graziado Business Review, the three things that most often tend to sabotage the smooth transition of control from one generation to another are: (1) a lack of careful and comprehensive planning; (2) poor articulation of objectives; and (3) no real desire by the next generation to actually carry on the family business. While passing on a business to the next generation is challenging, it has often been done quite successfully.

Tips on succession

Business succession planning is not an exact science. According to the Next Avenue website, there are several steps you can take to help try to ensure a successful business succession. First, choose your successor carefully. This should be an “intensive effort” that calls for close examination of those who have the potential skill sets and abilities to lead the company. Second, develop a formal training plan for your successor. Identify the critical functions of the company and make sure your successor gets experience in all of these areas.

Third, establish a timetable for shifting control of the company. Your successor and company employees need to know when the successor will assume the top position. Moreover, a timetable helps motivate your successor to quickly and successfully complete the training program and get up to speed by a certain date. Fourth, and finally, install your successor. For the sake of your company and your legacy, you need to install your successor during your lifetime. Once the transition occurs, you then need to stand back, get out of the way and allow your handpicked successor to carry out his or her role.

Seek legal assistance

If you are the owner of a business that you desire to pass on to future generations of family members, you should contact an Ohio attorney experienced in handling business succession planning. The attorney can help you craft a business succession plan that protects both the business and your family following your retirement.