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 professional 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.
5 Tips for growing your family business
If you’ve inherited your family's business, you’re part of one of the largest forces in the U.S. economy. Family-owned businesses contribute 70% to 90% of the world’s global GDP.1 In America, family businesses are responsible for 62% of the country’s employment.2
As part of a business family, you already know about its daily operations and the company's mission. However, inheriting and expanding a family business are different things.
Consider these five ways to ensure the growth of your family-owned business.
1. Separate work and family.
One advantage of working with family members is that they know you, and ideally there’s a sense of trust and a level of commitment that took many years to develop. However, working with family can have a few downsides when conflicts arise. Set limits on discussing work topics at home (and home topics at work). Many people take their work home, but establishing ground rules on how to handle this is beneficial for both your work and home environments.3
2. Evaluate everyone’s strengths and set expectations.
In any business — and particularly in a family business — there can be a tendency to “do things the way we’ve always done them.” As you take control of your family's business, use this shift in leadership to reevaluate the strengths and goals of each member of your team. Then, define who's in charge of each area of the business and outline what that entails. Be clear and set specific goals and objectives to help each individual and the business succeed.4
3. Leverage your business’s advantages.
Unlike a startup business, you already have an established brand, a team of employees and relationships with your banker and community. Those are advantages that most new business owners can’t claim, and you want to avoid underestimating them. Look at how you can improve operations using these assets, and start crafting your plan to lead the business successfully into the next stage of its legacy.
4. Encourage some family members to leave the business — for now.
Working in a family-owned business can create tunnel vision. You might be tempted to do things the way they’ve always been done, and as times change, those ways may not be as effective as they need to be. Saving for and attending college, studying business and working outside the family business for a time gives younger family members the opportunity to gain new insight and develop skills they can bring back to help the family operation thrive.5
5. Create a business succession plan.
Although you're taking over your family's business, it’s important that as the owner, you create a plan for its long-term future. That includes creating a succession plan with your trusted legal, tax, and business advisers. According to a recent Nationwide Small Business Survey, three of five small business owners don’t have a plan for what to do with their business when they're ready to retire. Having a succession plan allows you to identify who will lead the company in your absence or, if other family members aren’t interested, what you'll do with the business.
Knowing where you're headed and how you'll get there are keys to the success of your family-owned business. Getting the right financial advice can ensure you have a solid plan that helps you reach your goals. See how Nationwide can assist you on your path to success.