It’s no secret that running a family business takes a great amount of time, hard work and commitment. Often, as an owner you wear many different hats and have to move at a rapid pace to keep up with changes from your competitors as well as shifts in your industry.
But one thing that successful business owners may overlook is creating a plan for the long-term future of their business.
According to Nationwide's recent Small Business Survey, three out of five small business owners don’t have a plan for what to do with their business when they are ready to retire. Business owners offer a variety of different reasons for not having a plan in place, such as:
- 47% of business owners think such planning isn’t necessary
- 33% of business owners don’t know when to create a plan (11%), aren’t sure whom to work with in crafting a plan (11%) or simply don't feel they have the time to make a plan (11%)
- 14% of business owners don’t want to relinquish their life’s work
- 8% of business owners are overwhelmed by government regulations
However, having a business succession plan should be as high a priority as running your daily operations.
Sharing knowledge for the future
The challenges that first-generation business owners face, are likely to be much different than those that future generations encounter. As founder of the business, it’s natural that you want to retain the business for as long as possible. Although it is common among business owners, it’s not in your best interest.
Not only can this prevent future generations from fully learning business operations, but it can also impede progress as the business does things the way they’ve always done them. According to experts, this reluctance to relinquish control at the right time is one of the reasons fewer than one-third of family businesses survive the transition from the first generation to the second, and only about 12% survive from the second generation to the third.
The good news is that doesn’t have to be the case. Planning for both the success and the succession of your family business allows your business to grow while you develop talent and identify or cultivate strengths among your potential successors. When you allow yourself more time to plan for the future of your business, you can begin evaluating family members or employees based on their interest, managerial and entrepreneurial skills.
With a good plan in place, you can begin to not only prepare the individual for his or her future role, but you can also help avoid conflict when it's time to hand over the family business to your successor.
When to begin planning
Just as you took time to examine the market and assess your needs before starting a business, it's essential that you allow yourself ample time to create your family business succession plan. Many advisors say five years is the minimum amount of time you should allow – but more is always better.
In fact, entrepreneurs who are starting a business are often advised to build an exit strategy into their business plan – that's how important the business succession planning process is.
The bottom line is, it’s never too early to begin planning for your family business succession, and if you haven’t begun thinking about it yet, this is the time to start.
Get outside help
According to Nationwide’s Survey, fewer than half of small business owners who do have a business succession plan have discussed it with their financial advisor or lawyer. Considering how much time, effort and personal resources have been invested in making your business a success, you'll want to make sure you receive professional advice on your plan.
Receiving input from a trusted professional can help ensure you are establishing a fair price for your business and that you have a solid plan to make a smooth transition. Also, it provides you with the confidence that you have established your own retirement income and have developed guidelines that will give all parties a sense of security, even after your business changes hands.
Planning to pass on the family business can be tricky, but ultimately will be worthwhile. Conducting thorough research can ensure you make the right decisions. Nationwide's resources can help you address some of the issues you may face.