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Plan Ahead for Your Company's Survival

Plan Ahead for Your Company's Survival As the founder, owner and manager of your family business, you probably have a hard time imagining anyone else running your company as well as you. You may be right, but that attitude spells trouble. Even though they know better, many successful entrepreneurs choose to ignore the need for planning for their business succession.

For many, it's a question of facing up to their own mortality. For others, it means making a difficult choice of a successor from among their children or valued employees. Since many owner's income and assets are tied up primarily in the business, passing it on means not only giving up control, but also their financial security.

Family businesses face other problems too: sibling rivalry, squeamishness among family members about addressing tough business issues, and a lack of talented or willing management to carry on the business into the next generation. In order to avoid a family rift, many families avoid the difficult question of what will happen to the business after the entrepreneur retires or dies. True, emotions are part of nearly every decision affecting the future of the company, but the business owner must be able to objectively assess the business from both a personnel and financial point of view.

Failure to adequately prepare for the future has been the death knell of many family businesses. According to a study by the Wharton Business School of the University of Pennsylvania, only about one-third of family-owned or controlled businesses survive into the second generation. And the odds of continuing into the third generation are even slimmer.

Waiting too long to put a business succession plan into place can also damage the business. Customers, creditors, suppliers, and even employees grow nervous about whether the company will fall apart once the owner is gone. Without a clear-cut program of succession, your family business may begin and end with you.

Creating a Solid Succession Plan
If you want your business to be in the one-third of businesses that survive, planning is essential. In essence, a business succession plan is a documented road map for your partners, heirs, and successors to follow in the event of your death, disability, or retirement. It can include a strategy for distributing business stock and other company assets, buy-sell agreements, life insurance policies for estate tax liabilities, debt retirement schedules, and the division of responsibilities among successors. A plan may also be used to orchestrate the sale of your business if your children aren't interested or capable of running it.

Plan for the Unpredictable
A viable business succession plan is, above all else, flexible. Business, family, health, and partnership situations can change at any moment. You should be able to easily modify and amend your plan to adapt to any changes that may lie ahead. Consider these examples:
  • For years, your son has been an active player in your business; he's come up through the ranks and his last three deals netted a hefty profit for the company. Now it turns out your daughter wants in, too. Her legal background will be a big plus. But how will you divide company ownership and leadership responsibilities between them without causing family friction?
  • What happens if someone on your management team is suddenly disabled and most likely won't be returning to work? What if your partner and her husband divorce and the settlement calls for a division of a portion of the business? Or, what if you need an infusion of capital to take advantage of a sudden expansion opportunity? Whatever situation may arise, is your business structured to handle unexpected changes and opportunities? Be prepared with a plan that can help meet the challenges of life's twists and turns.


Who Will Carry the Torch?
Is there really anyone out there who can run your business with that same inimitable style and acumen that you've brought to it? There won't be unless you're there to teach that person how. By grooming a successor now, you'll be able to impart the knowledge and experience you've accumulated over the years, and be assured of continuity in leadership style and, hopefully, profitability after you're gone. Picking a successor can be a minefield, however, especially if you have a choice of equally qualified children or employees.

With more than one child involved in the business, you must decide which one gets to be boss and which merely get voting stock. How will you divide assets equitably among your heirs if some are active business participants and others are off in their own careers? The distribution of power and assets among siblings can be a highly divisive issue, even in the happiest of families. More than one family business has folded because of discord over these problems.

Your challenge: divvy up business responsibilities and assets in a way that allows your business to survive while preserving family harmony. If you're lucky, you may already have a capable child whom you'd be pleased to pass the reins to. Once you've chosen your successor from among your children, the only hitch then is keeping the others interested, loyal, and productive despite being passed over.

No likely candidates among family members or your employee pool? That's a warning sign you shouldn't ignore. Your management style may be hampering employees from turning into leadership material. Or, your hiring and training programs simply may not be doing the job. It is difficult for any business owner to let go, but letting go and training the next generation of leadership is the only way to protect your company's future. Be sure to make career advancement and management training programs a top priority.

Don't wait until it's too late. With the guidance of qualified financial and legal professionals, put in place a business succession plan that will give your business the solid financial and leadership base it needs to survive.



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