Among the most common dilemmas that family-owned small businesses face is related to their future: How do owners pass on their business to their kids? Furthermore, will they ever be a hundred percent certain that their kids will want to run the business, or if they can make it profitable enough to be passed on to the next generation?
The vast majority of small business owners have concerns about passing on control of their small business, which they usually consider their “baby”, made from their sweat, tears, and blood, to new ownership. Add to the transition the complicated dynamics of family relationships, and the entire situation becomes even more challenging and overwhelming.
Common Hurdles to Family Business Succession
Oftentimes, we hear about quarreling siblings and a lack of understanding and communication among family members. It’s good to think that families only feel positive feelings, like respect and love towards each other, and that these feelings would encourage everyone to take care of the family business.
But negative feelings like perceptions of favoritism, jealousy, resentment, and greed, could also drive clouded decisions about the business’s future. Additionally, the owner’s health concerns could further cause issues, with kids or other family members fighting over powers of attorney and medical directives.
But not all obstacles to these changes come with old and negative feelings. Sometimes, seemingly simple differences like the technology used for business operations come in the way. For instance, you may be completely fine with data entry for your professional commercial janitorial services, while your child wants automation.
Put simply, the business relies on plenty of manual processes that the kids want to modernize through automation, while parents are hesitant, sometimes, outright resistant.
Considerations for a Smoother and Efficient Transition
Not all hurdles to succession are unfixable. Careful planning could go a long way towards making the transition to the next generation smoother. Consider the following when planning for the family succession of your business:
Understand That The Entire Process Will Take Time
Discussing your business’s future with relevant family members as soon as possible is key. Seek advice from professionals, including an estate planning lawyer, accountants, and professional advisors, about the business’s transition as well as your personal financial matters. Take note that these matters usually can’t be completed within six months and could even take up to a year with some families.
Cover All Your Bases
A foolproof business succession plan should cover the transfer of assets and the transfer of power. Due diligence is particularly crucial to ensure that potential buyers, even if they’re family members, have cash or approved financing to buy the business.
A messy deal will probably add more tension to family quarrels. You should likewise keep in mind that future taxes could be uncertain in the event that the deal occurs during an election year or at any time that the fate of corporate tax structures is in the air.
Plan With Realistic Expectations In Mind
What do you do if your firstborn isn’t interested or doesn’t have the skills to run your business, but another family member is? You need to analyze the strengths of every possible successor. There’s also a chance that no one in your family wants to run the business so selling it would be the best option.
Recognize and Accept That Things Will Be Different
Taking over a business and operating exactly how their parents did usually isn’t an option for the succeeding owners. Times change and business operations evolve, you must accept these differences and have faith in your successors.
Having a solid business succession plan and keeping these considerations in mind, your beloved family business will have a chance to succeed for generations to come.