Greg Hoernschemeyer, Senior Vice President, HORAN
Perhaps the most important decision you will ever make and almost certainly the toughest will be what to do with your business when you are ready to retire. For a family business, transition is a once in a lifetime decision. Possibly no challenge has as much potential to create family stress, or conversely highlight the many advantages of owning a family business.
All successful businesses share the same need for longevity – a plan for the future. If the business, legal, technical and emotional issues weren’t complicated enough, consider the fact that only 30% of family businesses survive transitioning to a second generation. Even more alarming is this percentage decreases dramatically for businesses passing to third and fourth generations, and beyond.
As hesitant as many families are to discuss the issue, timing is of the essence. The long-term health and continuity of a family business is dependent on carefully planned strategies and communication of the plan to the right stakeholders at the right time. It is important to start planning earlier than you might think at least 5 years in advance. However, it is never too early or too late to develop a plan to protect the future of your business. This helps to avoid the pitfalls of an unplanned transition, and to make sure both your own wealth and the business’ finances end up in the best possible condition. By doing advanced planning you will also increase the likelihood that your business will outlast well beyond the leadership transition and deliver the utmost value to your family.
Unless you plan to wind down the business entirely and close the doors, your exit strategy can take two basic forms:
- Transition: Sell the business outright, either to an outside buyer, to your partners or employees.
- Succession: Hand off the business to a successor from inside the company, either a family member, manager or key employee whom you groom for the position as future owner.
No matter what form is best for your situation, you should plan on a full business valuation-either to maximize proceeds from the sale, or to prepare for sustainability and growth after you leave.
Your impact on the business could last long after you give up day to day control. The steps you take now will help prepare and ensure its continued success as well as establish a process so that you can move onto the next stage of life. By investing time and thoroughness to create a structured plan today, you will help ensure the continuity of its success well into the future.