Thomas Edison’s famously stated that “genius is one percent inspiration and ninety-nine percent perspiration.” This…
If there’s one thing every single estate planning attorney would like for the holidays it is an answer to the profession’s constantly puzzling question: Why do more than half of US adults neglect to organize their affairs? After all, according to survey data, 58% of folks don’t have so much as a will.
I, myself, don’t have a definitive response but one contributing factor is the simple, age-old truth that it takes money to make money. Those folks that already control significant wealth inherit generations of knowledge about how to protect it and have the security to address matters that ensure their fortune’s continued growth. Those who are grinding, on the other hand, often have too many immediate worries to attend to long-term planning.
In the world of family businesses, this appears to be doubly true. According to a recent survey by the National Bureau of Economic Research’s Family Business Alliance, not half, not even a quarter, but only 15% of family businesses have drafted any sort of succession plan. The hard truth behind this statistic is that most of these businesses will fail when their original owners retire or pass away. This is because even in the best of circumstances only 30% of family businesses survive the transition from first to second generation and even fewer (12%) from second to third. If you are a family business owner, avoid contributing to these discouraging statistics by taking note of the seven steps outlined below.
1. Start Early
A successful succession plan depends on cooperation and coordination between existing employees, family members, and stakeholders. The sooner you start the conversation, the more likely it is to gain approval and support.
2. Communicate Clearly
Heirs to the family business as well as other involved parties need to clearly grasp the purpose, goals, and extent of the plan being developed.
3. Identify Leadership Qualities
Nobody, not even a family’s firstborn, arrives prepared to take over the family enterprise. The qualities needed to run the business must be learned and for this to happen they must first be identified.
4. Build A Leadership Development Strategy
A plan that ensures new leadership has the skills needed to guide the business toward continued success takes years to implement (hence Step 1) and yet this is an essential step in any successful succession.
5. Manage Talent
No successful business is run by one person alone. Onboarding and nurturing new talent are just as important as implementing a leadership development strategy.
6. Identify Future Leaders
Before making promises to potential heirs, take time to identify future leadership needs, and develop a system for assessing candidates.
7. Marry Business Needs to Leadership Succession
Ensure that a mechanism is in place to coordinate strategic business needs with succession planning. This means building channels of communication that allow seamless transfer of information between involved parties as all are working toward the same goal: business longevity and growth.
Naturally, all of the above is easier said than done. Implementing the seven steps outlined requires drafting a plan that takes into consideration goals and objectives, business valuation and structure, tax and legal considerations, estate plans, successor selection and training, contingency planning, timelines, and so much more. Luckily, you don’t need to reinvent the wheel in tackling all of this. An experienced estate planning attorney with business law expertise will have attended to everything mentioned in this article before and will be able to guide you around potential pitfalls and toward success.
If you are a family business owner and succession planning is on your mind, don’t hesitate to reach out. We’d be happy to discuss how we can help and if somehow we aren’t able, we will happily direct you to resources that will.
Contact the Estate Planning Attorneys at the Law Firm of Christopher W. Dumm