By Christopher Price, CFP®, RICP®, ChFC®, C(K)P®
Family businesses are a major component of the U.S. economy, contributing to 57% of the national GDP and employing 63% of the workforce. Yet only 13% are successfully passed down to the third generation. If you are planning to pass your family business to the next generation, it is crucial to lay the groundwork as early as possible to ensure a smooth transition. Creating a sound succession plan will not happen overnight, but here are four steps you can start thinking about today to keep your business in the family for years to come.
Make Sure the Next Generation Wants to Take Over
One of the most important aspects of passing your family business to the next generation is first making sure that the next generation even wants to take over. I’ve seen many business owners build their entire succession plans around a single family member, only to find out years later that they had no interest in taking over.
Don’t let this happen to you. Be sure to communicate early and often about your plans for the future and involve the next generation in succession planning as the transition gets closer. By building a common vision of the future that both generations can work toward, you are more likely to receive buy-in from younger family members who may have been on the fence initially. If, after several conversations, you find that your preferred successor is still unwilling to take over, you will still have plenty of time to find someone else or reevaluate your succession options.
Understand Family Dynamics & Resolve Conflicts
In addition to all the normal considerations that go into choosing a business partner or successor, those with family businesses must also think about the dynamics between family members. It’s not uncommon to encounter conflict between generations around vision, values, and expertise.
Sometimes the younger generation may not recognize or acknowledge the hard work and sacrifice that went into creating the business. Or the older generation may assume that they know everything and dismiss other family members as being too young and inexperienced. Whatever the case may be, these dynamics must be recognized and resolved before transferring the business if you want the company to thrive into the future years ahead.
Recognize that family dynamics are an inevitable part of succession planning and they will evolve over time. But that evolution can go either way if you are not careful and consistent with communication. Be sure to keep the lines of communication open and celebrate generational differences as you build out your succession plan.
Choose the Right Business Structure
Regardless of what you decide to do with your family business, whether you pass to the next generation in its entirety, or sell all or part of it to a third party, choosing the appropriate business structure will make a difference in the longevity of the business.
For instance, a sole proprietorship will not continue in your absence if you were to become incapacitated or pass away. This is because it is not considered a separate legal entity from the owner of the business and therefore cannot be passed on in any way. The only way for a sole proprietorship to survive past the first owner is to be restructured as another business form.
There are many types of business structures from which to choose, and the most appropriate form for your situation will vary based on the size and nature of your business, number of employees, and other unique circumstances. No matter which option you choose, it’s important to understand the pros and cons of each, including how they are legally passed to the next generation.
Seek the Input of Professionals
When it comes to succession planning, don’t go it alone. Transferring ownership to the next generation involves many factors, and deciding how and when the transfer takes place requires input from several different parties.
Professionals such as CPAs, attorneys, and business consultants can and should be used to help your family navigate the process. Part of our role as financial planners is to have objective conversations about your exit plan and provide a neutral pair of eyes. This can help smooth the transition process and improve the long-term success of your business.
We can also sit in the middle of your network of professionals, acting as a bridge throughout the process, helping you get clarity, understanding, and action while coordinating and translating the financial and legal jargon that goes into building a strong succession plan. To learn more about how our team can help your family business plan for the future, schedule an introductory discovery consultation by calling (954) 625-1531 or emailing me at [email protected].
Christopher Price is a financial advisor and investment advisor representative at Coastal Wealth, a full-service financial planning firm dedicated to going the extra mile to serve its clients with excellence. With over 10 years of experience, Christopher works with high-net-worth and business owner clients, using an educational approach to guide them through the opportunities and challenges they face so they can pursue their goals with confidence. Christopher is known for building long-lasting relationships with his clients and for providing a safe environment for clients to ask questions, receive honest and understandable answers, and become empowered to make the appropriate financial decisions for their lives. Christopher graduated from Susquehanna University with a bachelor’s degree, double majoring in finance and entrepreneurship. He also holds the CERTIFIED FINANCIAL PLANNER™, Retirement Income Certified Professional® (RICP®), and Chartered Financial Consultant® (ChFC®) professional designations. Christopher’s passion for education has led to him partnering with his community to provide workshops on a variety of financial topics that are designed to help financial literacy and confidence. He also founded a not-for-profit organization called Invest in Knowledge, where he and his team coach the community and local organizations through their financial journeys.
When he’s not working, you can find Christopher exploring his many interests and pursuing his extensive goals, including studying for his pilot’s license, traveling, playing baseball or golf, enjoying the ocean outside his front door, or taking his dog, Ranger, to the dog park. He also loves to donate his time and money to local charities and causes he cares about. To learn more about Christopher, connect with him on LinkedIn.
**The views and opinions expressed are those of Christopher Price. Christopher Price’s views are not necessarily those of MM Investor Services LLC or its affiliates. Christopher Price is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC www.SIPC.org. 1000 Corporate Drive, Fort Lauderdale, FL, 33334. (954) 625-1351** CRN202509-3169846