A family business comes with own sets of pros and cons. While it is great to have a business be passed down that has already gone through its growing pains, it also has a great deal of responsibility associated. Keeping it stable, while continuing a sustained level of growth is a challenge…as is making the transition from the owner’s child to a small business owner in your own right.
But how do you successfully accomplish this? And what are the best practices to ensure a successful transition between generations? While definitely complicated, here are three crucial aspects needed to carry out a successful transition.
1. Total and complete honesty
There are many different aspects of this, but the best way to start a transition? Be completely honest. This is not the time to hold back or to dance around sensitive subjects. It might be the case that not everyone will receive an equal share, or there might only be one successor – it is time to lay out on the table.
Work with an experienced accounting team that can help guide the process, and help you decide on what the best options will be. As a recent article in Forbes discusses, it is best to have a wish list approach of sorts when starting the process. This will help determine the rest of process, and how complicated it might be.
Most likely, you already have an idea in mind of what the best course of action is for the longevity of your business. Use that as a starting point, and work to develop what is the best way to accomplish this and who will be guiding that process going forward.
2. Deep dive into the finances
Once you have a general idea of who the business is going, now it is comes time to figure out the how. There are a multitude of considerations here, from ownership transfer to taxes and management and a host of other financial decisions.
This will require a deep dive into the financial health of your business, and get a clear understanding of what your limitations are and if the business is viable. Perhaps as time has gone by, you might not keep an eye on revenue as much, or your attention has been diverted. But part of successful business transitions is determining how your business will be passed on, and what the best practices are in terms of taxes and management.
Sit with your accounting team to get a full view of the current business state, and get their recommendations on best practices. You will likely need a bespoke succession plan, but that process cannot start without understanding the true financial health of your business.
3. Start early
The most crucial part of the process? Start early! Many business owners do not think about transitions until it is closer to the time of retirement, and that can lead to many issues. Transfers, taxes, and other management issues can crop up and hamper the process. To ensure that this is a smooth process, it is important to start early.
This does not only extend to the actual execution of the transition but also leading up to it. If you have an idea of who will take over the business, start handing them the reins early. A recent article in Inc discusses the idea that children who are not given the chance to experience the business before taking over operations rarely succeed. Begin trial runs early, and take time to answer questions and explain current processes in place. This will do wonders in helping the next generation get more comfortable in the role, and feeling more confident in their new set of responsibilities.
We have a great deal of experience in succession planning, and helping successfully transition family businesses. To learn more about our expertise in this area, please contact us.