For this week's SmartMoney Monday, we're talking about family businesses and transferring control and ownership to the next generation. Only about one third of family businesses successfully transition to the second generation. So how can family businesses increase the odds of success?
There is a five step process that can really help. Step 1 is, establish goals and objectives. Create a succession plan. Make sure each generation is in agreement on the vision, goals and future objectives for the business. Next, establish a Decision-Making Process so that family members know how what to expect and also a process for resolving disagreements. And make sure you put a succession plan in writing and communicate that plan to family members.
Step 3 is to establish the succession plan. Identify roles and responsibilities for all family members. Step 4 is create a business owner and estate plan, so when the business is sold to the second generation or the original owner dies, there's a plan in place that helps reduce taxes and delays transferring stock in the company. Make detailed plans instead of leaving things to chance or confusion.
Finally, Step 5 is create a transition plan. Will the second generation buy the business, will it be gifted? Or a combination? If the business is going to be purchased, look into financing options.
Many family businesses do fail to pass between generations. But, if you take the time and energy to plan a smooth transition, you can keep the family business in the family for generations!
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