It’s natural for parents to want to pass the fruits of their labors along to their children. Unfortunately, when that includes a family business, it’s not always an easy task.
While family businesses are behind almost 80 percent of the new jobs being created, only about half of the owners expect to pass the reins to their children. Far fewer — about a third — will actually be successful at doing it. Without a solid plan for transferring the ownership and responsibilities, a business can falter under split leadership or suddenly be directionless.
Here’s how to avoid the common pitfalls:
Address any family splits early
If you have a blended family or a family divided by personality conflicts, ignoring the potential for disputes is a prescription for disaster. Talk to your heirs now about your vision for the future and decide who is going to take what role in the next stage.
Establish goals for both generations
Address your goals and the goals of your heirs. If you need to maintain an income from the business even after retiring, let your heirs know that upfront. You can work out ways to see that everyone gets most of what they want — but only if you know what’s really important.
Document your succession plan
You need a written plan of succession that documents who will takeover what role, what role you will retain, what grievance process can be followed and how disputes will be resolved. Make sure you discuss any legal issues, like whether the business is to be bought or given as a gift — and how to handle the taxes.
Establish a transition period
The transition period is critical and will likely determine whether the business thrives or dies. You need to lay out a detailed plan that includes a timeline. List off any conditions or expectations you have of your heirs — and be prepared to let go of the control of the company when the time comes. A clear plan eases everyone’s anxiety (including yours).
Transitioning a business to its second generation of leaders should be handled much the same way that starting a business should be handled. Take a lot of advice, communicate often and operate according to a well-crafted plan.