CHARLOTTETOWN, P.E.I. — After decades of sweat and stress, many business owners would love to pass the family business on to loved ones.
But having a spouse or kids take over shouldn’t always be part of the succession plan. Here’s why you may want to consider another option.
According to the Family Firm Institute, only about 30 per cent of family businesses succeed once the ownership is passed on to the second generation, and just 12 per cent thrive into the third.
With stats like these, it might be better to sell a business instead. However, that’s often easier said than done.
It’s a common misconception that, when there are children of a family which owns a business, the kids will eventually be ready, willing and able to take over that business.
But let’s say your kids have never shown any interest in taking over your business. If that’s the case, you may opt to keep the business under family ownership but hire or contract professionals to run the day-to-day operations.
Depending on your personal and family situation – say one in which your kids are actively interested and/or involved in your business – a key to a successful transition would be to ensure you have a proper and robust succession plan in place that brings your kids into your business alongside you to learn all about it long before the scheduled date of the succession.
On the other hand, if a full or partial sale seems best, start prepping for the sale, by strategically extricating yourself from the business.
Delegate tasks to others, document how your billing and inventory processes work, why and when discounts are given – everything that will make it easy for prospective buyers to understand your business and feel confident they can continue its success.
If necessary, bring in outside advisors to help streamline financial and/or other business systems. Make sure the brand identity is razor-sharp – and then seek buyers and put together a deal.
One reason why business owners like passing down the family business is that it creates a legacy for future generations.
If your kid(s) can run the business successfully, they will, in theory, have enough money for years to come.
On the other hand, deciding not to transition the company to the kids doesn’t mean you don’t want them to be financially secure – you just have to use the proceeds from the sale wisely.
Talk to your professional advisor about a financial plan that sets you up for a good retirement and helps the next generation with their needs and wants.
That way, life after the family business will be both harmonious and regret-free.
Jeff Somers, BA, RRC, CFP, works at Investors Group in Charlottetown. This column is written and published by IG Wealth Management as a general source of information only. It is not intended as a solicitation to buy or sell specific investments or to provide tax, legal or investment advice. Contact your own adviser for specific advice about your circumstances.
