Are you running a family business or thinking about transferring the ownership of your company to a family member when you retire? If that describes you, these tips will help.
Family businesses have unique business planning needs. I’m speaking from experience. I have helped many people who own generational businesses, and I have direct experience running a generational business too.
The difference between owning a generational business and any other business is not just in how the owner exits the company. There are also differences in the way you need to run and manage a family business. Paying attention to these differences can help you to successfully transfer ownership to a family member (or members) when you are ready to retire. The difference between a family-owned company that flourishes or fails is largely in how it is managed.
Family businesses can be large or small, they are not just “Mom-and-Pop” operations. Some have survived many generations, though most do not make it past the third generation. This may be due to the way they are run and managed. Mars Incorporated, which owns confection, healthcare, and pet food manufacturing companies, is a 110-year-old family-owned company, that is currently being led by a fourth generation of family members.
Growing a family business can be a great way to build and transfer wealth between generations. It’s one of the only ways to turn your physical work into future, recurring income for your relatives. And it can help to reduce estate taxes, which is a consideration if you have built a sizeable company, or plan to.
Here are three tips for building a generational business:
Strive for clarity and transparency in all internal communications
Put everything in writing (at least in a Memo of Understanding) to reduce the possibility of misunderstanding, arguments, or fighting in the family. I’ve seen businesses that have failed due to lack of clarity, communication and commitment.
Create processes that include and respect the input of younger generations
Arrange a family board meeting as the maternal or paternal figurehead of your family/business. Allow your family members to voice their thoughts and feelings about the business and whether or not they want to have a direct or indirect involvement in it.
Make sure you have a backup plan in case your chosen successor(s) does not want to manage the business
In some cases, a business owner may decide to sell the company if there is no relative who wants to manage the company as a successor, but there are other options. If the company is thriving, you can designate a management team without relinquishing family ownership of the business.
Hundley Advisors can help you grow your company and create an exit strategy that fits your vision, whether you want to transfer ownership to another family member or sell your company. As with anything, the ability to achieve your goals requires a solid plan and time. We’d be happy to have a chat with you about your options. You can schedule a call here.