Family-Owned Business Succession Requires Planning

• There are nearly 13 million family-owned businesses in the United States.early 35% of FORTUNE 500 companies are family firms.
• More than 90% of all businesses in North America are family owned.
• The average family-owned business earns $2 million to $5 million per year and has 20 to 50 employees.
• Family businesses account for 50% of the GDP, 60% of the nation’s employment, and 78% of all new job creation.
• In the next five years, 39% of all family-owned businesses will have a change in leadership.

For every family-owned and -operated business, the process of passing the control of the enterprise to the next generation requires foresight and delicate planning, as well as sensitivity to the needs of the people involved. The resulting plan must provide for the older generation while ensuring both the continued success of the business and the financial welfare of its new leaders.

Even under the best circumstances, succession can be hard on a business. Family-owned businesses have only a 40% chance of surviving being passed from the first to the second generation. Only 15% of family-owned businesses survive a second or third succession, and only 1% survive a fourth. Unfortunately, one of the greatest reasons why businesses fail after being handed down is a simple lack of planning. In fact, as many as 25% of family-business shareholders who are seniors complete no estate planning other than writing a will.

Fortunately, business succession need not be a heartache for the family or a death sentence for the business. With some expert advice, a well-developed strategy, and a strictly followed plan, any successful business can survive passage between generations. Of course, the key to any financial plan is timing, and the present is the only time to plan. So, don’t hesitate. Be sure to consult a financial planner or estate planner who has experience with business succession before making any such decisions regarding your business.