It takes years to plan a family business transition plan..
Experts say, transitions could take over five years to see the succession from beginning to end.
For family business succession plans, it can take up to 10 years depending on the size of the team, nature of the business and complexity of the family dynamics.
Committing to creating and implementing a business succession plan will ensure the founder retains the full value of the business and is able to see it succeed.
If health troubles arise and when retirement edges closer, it becomes increasingly important to develop a proper family business succession plan.
5 Reasons Why
You Should Start Your Family
Business Succession Planning
1. It Clarifies The Available Options
Maybe your son or your daughter will take over your family business, or maybe both!
You might even want to sell the company. In some cases, even a senior manager could be considered to take over the business…
Anyways, there are a few options that need to be considered.
Business succession planning gives you the opportunity to weigh out all your options and decide the best route for transitioning your family business.
By considering all the possible options, you can ensure the future of the business is in the right hands.
2. Prepare Your Successor
In family business succession, the family member will likely need five years or more to be ready to take over.
They need time to learn how all the moving parts of the business work, build the skills required to run and market the company and nurture relationships with employees, suppliers and existing clients.
By preparing them early, you can give you and your successor a headstart when it comes time to transition the family business.
3. Prepare Your Company
The value of the company is a key reason to begin your business succession planning early..
Preparing your business starts with ensuring it has a solid client base, a record of profitability and a healthy balance sheet. You may need to reinvest in the business to maximize operations and consult your accountant on how to minimize taxes.
It’s important to prepare physically and mentally for the company to operate without your influence and guidance.
Once the successor is ready, you must trust in their decision-making abilities and let go of the daily operations.
4. Arrange To Finance
It’s important to talk to your bank right away from the very start.
No matter how long you’ve had your banking relationship with your banking representative, tell them about the future vision of the company.
Especially if it involves an internal successor who doesn’t have the money to invest.
A mix of financing and term payouts, or even mezzanine financing can be an option but getting the conversation started with your bank, and perhaps other financial institutions is crucial for long-term transition goals.
5. Plan, Even If You’re Not Planning To Exit
Many family business owners love their businesses and don’t want to let go any time soon.
However,having a family business succession plan ready can be useful in case of an emergency. If health issues suddenly appear and you need to sell, it’s difficult to optimize the company’s value without leaving your family with a big tax bill….
and the business will have a hard time with day-to-day operations.
Overall, transitioning your business to a successor in your family is a path most business owners want to take. By starting early, you can make sure your family and company are prepared for succession.
Succession planning takes longer than you think.
According to a 2017 BDC(provide source) survey, five out of six entrepreneurs believe the business succession process from one generation to the next can be completed in two years. In reality, succession can be a very complex process that may take upwards of 5-10 years to transition.
You can read our book Secrets To Succession to get the whole story on how we transitioned our family business.
Your future successor might be 10, 20, 30, or even 40 years old by the time you start planning for succession. Talking to your team about the future leadership of the company is crucial to the longevity, survival of the business and family relationships. Creating a succession plan, executing it, and enduring the transition is a monumental task, so getting a head start is very beneficial.
We encourage you to begin making those phone calls to your accountant and your lawyer to get the process started. From there you may also need to involve other professionals such as a business consultant, a financial and estate planner, and more. This team of professionals will get you on the right track and mindset for family business succession.
Secrets To Succession is a book written by first-hand successor, Gerard Gust, who was groomed from a young age to take over the family business. At only 33 years old, he was able to retire his father in half the time they had planned. Gerard shares his own succession process, what works and what doesn’t in order to help other family businesses prepare, implement, and endure the complex family succession process.
“The odds were stacked against us but the strategies shared in this book helped us succeed, and you can do it too!” – Gerard Gust