What’s the Most Important Factor in Picking a Successor for a Family-Owned Business?
The most important factor, whether you pick an individual successor or team of successors, is that whomever you choose shares your passion and vision. For example, if you want your business to stay an independent company after you retire, you need to choose a successor who shares that desire. Your successor needs to be a leader that can inspire those working in the business. They need to have a vision of what the future of the business can become.
On the other hand, your successor shouldn’t be a family member who doesn’t have the right training or experience to run your business successfully. This is why exit planning is so important for transferring a business to the next generation. Through planning, you have years to develop a successor who has the skills needed to keep the business running smoothly.
If you ultimately decide there isn’t a good successor within your family, look to bring in outside management to run the business upon your retirement. Remember, the ultimate goal is the long-term survival of your business, which will ultimately provide value to your family for generations to come.
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What’s the Difference Between Family-Owned Businesses Who Survive to the Next Generation and Those Who Fail?
In general, most family-owned businesses fail after the first generation. The speed at which they fail though is often contingent on whether the owner makes practical business decisions, including how early they begin the exit planning process.
In particular, one issue that often expedites the failure of a business is forcing adult children into the business when they are unable or uninterested in filling the role. This can cause morale issues within the company and lead to internal disillusionment, ultimately hurting the long-term viability of the business.
How Can Family Dynamics Complicate the Transfer or Sale of a Business?
Family dynamics can make or break the ease of a transfer or sale of a business. In instances when family members don’t get along or are overly competitive, business owners may have to mediate or, in certain circumstances, ask certain parties to leave the business.
Unlike when you’re selling a business to an outside party, family dynamics raise tough questions in terms of estate planning. In cases where there is more than one family member involved in the business, family dynamics can complicate how and how much of the business transfers to particular members.
For example, let’s say one of your three children is involved in the day-to-day operations of the business and plans to lead the business when you retire. How you decide to split (or not split) the business between all three children, especially in terms of estate planning, can be tricky.
On one hand, you could sell or give the business to the child who is actively involved in the company, since they are the one helping grow the value of the business. In this case, your other two children would only receive their fair share of the remaining assets of your estate. On the flipside, to avoid ruffling any feathers, some owners might choose to divide everything among all three children equally, including the business.
Either way, family dynamics can cause even the most business savvy owners to make poor decisions, especially when it comes to the value of their estate. For that reason, it’s important to have an outside advisor you can rely on to bounce ideas off of and ensure you’re making the right decisions for the right reasons.