Business succession could go smoother with advance preparation

On Behalf of | May 11, 2020 | Estate Planning |

Only a small portion of family businesses have plans for ownership or management succession. According to the National Bureau of Economic Research’s Family Business Alliance, surviving a second generation is a major milestone that only 30% of family-run businesses accomplish. 

To create a succession plan that helps ensure your business passes through several generations, you may need to prepare in advance. If you have already found your successor, he or she could benefit from your hands-on training to help ensure a smooth transition. 

Transitioning an heir to manage your business 

The CPA Journal reports that only 12% of businesses survive through a third generation of ownership. Your children grew up seeing you managing employees and providing service to customers. It could take your heir some time, however, to appreciate your company from an internal and managerial viewpoint. 

When an adult child is ready to take ownership, he or she may gain valuable insight from an understanding of what has already gone into managing your legacy. Your business could benefit from getting an early start on preparing your successor to manage its affairs. 

Based on your current business strategy, you may need to teach your successor how to order raw materials, prepare or construct goods and then effectively market them. He or she may also require learning new skills to successfully solicit and maintain customers. If your successor does not have all of the required talents, you may need to create a new position and then train your heir in managing a key employee. 

Preserving your revenue stream and legacy plans 

Not all businesses have prewritten instructions and a transition plan ready for a management successor if an unforeseen accident or illness occurs. This could cause serious issues, especially if the chosen successor has not been fully trained. 

An unexpected interruption of business ownership or management could leave your heirs with an unprofitable asset that they may need to sell for less than its full value. A carefully chosen and well-trained successor, however, could step in and help ensure your business generates a steady and profitable income for your retirement and for your estate.