Family businesses are the most common business entity in theworld. Here is a staggering statistic: Family businesses account for 50% of the U.S. gross domestic product (and this figure is much higher for the global GDP— an estimated 70-90%). This figure is attributable not merely to a preponderance of small, mom-and-pop operations; rather, family-owned companies are represented across the full spectrum of businesses— from small to large. 35% of Fortune 500 companies are family businesses. Moreover, family businesses are vital to job creation. Family companies account for 60 percent of American jobs and are credited with the creation of nearly 80 percent of new jobs. The family-owned business is increasingly crucial to our economy, and the survival of family businesses often rests on the successful transition of ownership.¹ ²
As you prepare for the day that you step down from your leadership role in your family business, it is imperative that you have your exit plan in place. Don’t wait until it’s too late; don’t put off making decisions about your exit plan. This is the culmination of your years of work, and a great deal of consideration and time must go into effective wealth transfer planning.
There are many decisions to be made, but none more important than this:
Should I sell my business or pass it down to my children?
Do you want your children to take over the family business? All of your children or just one? Is there a clear leader among your heirs? How do you pass down the business equitably? Do your children have the ability to run the business or should someone else manage it? Who will retain control of the business upon your death? Will you pay capital gains if you sell your business to your children? Do you need to receive income from the sale? These are just some of the questions that need to be answered as you prepare your succession plan.
Family-owned businesses often do not survive the transition through successive generations of ownership. Studies indicate that only around 30 percent of family businesses make the transition from the first to the second generation, and the numbers drop drastically for successive generations (5-10 percent make it to the third generation and 1-2 percent make it to the fourth). Family businesses have their own unique challenges; non-business issues and family dynamics often complicate the decision-making, and estate and inheritance issues (including estate tax difficulties and probate delays) can further impede a smooth transition.
Wise, effective succession planning is key to ensuring that your business will not only survive the transition but also thrive under the leadership of the next generation. Studies indicate that the two greatest tools to a successful transition are communication and trust.The family should meet with advisors and have ongoing discussions about the future and all the potential issues surrounding business succession and management.
A succession plan aims to ensure that, when you retire or pass away, your business will continue according to your vision and that your heirs will not be saddled with a huge tax bill for carrying out your plans. Creating a viable succession plan helps to position your family business for continued growth and success.
For some family business owners, after evaluating both the business and the family, the better decision might be to sell the business, rather than pass it down to a family member. There are many questions for you to consider:
What about alternatives to an outright sale? Have you considered passing on the ownership to employees through an Employee Stock Ownership Plan (ESOP)? What about selling a percentage of the company to a private equity fund?
There are many ways to divest yourself of your company and many crucial decisions to be made.
Enlisting the help of the right advisors is of paramount importance.
Effective sale or succession planning requires assembling a team of experts— an estate planner, a financial advisor, an accountant, a business attorney—who work together on your exit plan. You increase productivity and decrease distraction and worry by having a professionally advised, mutually agreed-upon, written succession plan in place well before it is needed.Don't put this off. Call a registered investment advisor and begin the process of preparing for the future transition of your company.
At Cravens and Company, we are ready to assist you.
Let us help.
* * * *
Sources referenced:
¹Evans, Michael. "5 Steps to Create a Viable Succession Plan for your Family Business." 2013. Forbes.
(http://www.forbes.com/sites/allbusiness/2013/08/28/5-steps-to-create-a-viable-succession-plan-for-your-family-business/)
²"Global Data Points." 2014. Family Firm Institute, Inc.
(http://www.ffi.org/?page=GlobalDataPoints)
Advisory Services offered through Cravens & Company Advisors, LLC, a SEC Registered Investment Advisor. Securities and investment advisory services offered through Osaic Wealth, Inc, member FINRA and SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.
Cravens & Company Advisors, LLC
1080 Interstate Drive | Phone: 931-528-6865 |
Cookeville, TN 38501 | Fax: 931-646-3619 |
info@cravensco.com | |
© 2024 Cravens and Company Advisors