Having a family business that is successful enough to pass down to the next generation is truly something special. In essence, it’s part of the American dream and not something every business owner gets to do. Passing it down is a gift to your family, and a way to carry on your legacy. Over $30 trillion is expected to change hands over the next few years thanks to generational transitions in family businesses.
But, it’s not just as simple as passing the torch and saying "good luck".
Instead, there are plenty of special considerations to keep in mind as you pass down your business. From the general communication that needs to take place to understanding business planning and legal considerations, it’s important to make sure you know what to expect before you pass on your business.
With that, let’s cover some of the considerations you should make for a smoother transition. So, when you are ready to "pass the torch", you’ll feel confident that you’re making the right decision.
Take Your Time
You might love what you do, but everyone gets ready to retire at some point. Whether you’re burnt out, overworked, or you’re just ready to start the next chapter of your life, you’re probably already thinking about moving on and passing down the business. But, make sure to take your time. The last thing you want is to blindside everyone with your departure and leave a trail of confusion and uncertainty behind.
Start talking to your family early on about the future of your business. The more everyone is "in the know", the less likely they are to let personal issues and emotions get in the way when the change finally does take place.
It’s also a good idea to work with professional advisors. Finding an accountant and lawyer to help you through the process will ensure everything is being done legally and ethically. Advisors will also help you to develop a proper exit strategy that works for everyone. There is no "one size fits all” strategy, so it depends on the current state of your business and what you’d like to see, moving forward.
Your succession plan should include things like:
- Transfer of power
- Transfer of assets
- Making sure both parties understand the corporate tax structure
A business isn’t going to have a successful transfer in six months. It might even take longer than a year for everyone to be on the same page and for the right documentation to be worked up. During that time, consider talking to the next generation owner about what they’re going to invest in the business before you leave. Typically, if they have something of their own invested, they’ll be more likely to take the transition seriously, cementing your legacy with pride.
Recognize the Differences
It’s tempting to want your business to stay the same, even after you leave. But, that likely isn’t realistic. Communication is crucial for successful power transfers, but don’t allow yourself to get hung up on "how things have always been done".
Family businesses are sentimental. They mean something. Maybe your parents or grandparents started the business and you want to keep their memory alive. Maybe you built it from the ground up and you don’t take change lightly.
Family Business transfer to the Next Generation | ABN-AMRO aboutwealth
But, the business world is moving forward rapidly. There are differences between your generation and this one, and your business needs to adapt to those differences if you want it to be continually successful.
If you’re a part of the Baby Boomer generation, it’s important to note how you might work differently from an adult child or grandchild from the Millennial generation. Millennials find motivation from:
- Continued training and education
- Performing a variety of tasks
- Being able to grow and advance in their careers
Obviously, some of those motivations will work incredibly well in an ownership position. Millennials want to feel as though their work has a purpose, which can drive their passion to make your family business even more successful. But, it’s likely not going to be about the almighty dollar for them. They might want to become more socially engaged, ecologically responsible, and sustainable.
It’s important to let that happen.
As long as the core values of the business remain the same and you can still recognize what the business is supposed to do, it’s okay to let certain changes happen. Keep your audience in mind. To stay successful for years, your business needs to continue to adapt and change. When you recognize the differences between the way you have done things and the way the next generation does, you’ll see that change doesn’t have to be a bad thing.
Consider the Personal Side
Transferring the power of a family business to another family member is different than transferring it to an employee. As much as you’ll want to keep things professional, emotions will get involved. That’s why communication is such a huge key in a successful transfer. Express your needs as you hand things over.
In some cases, the succession of power is nothing more than a few signatures on a page. Other times, you might be better off selling your business to a family member. It’s your decision, and it should be largely made on how much involvement you want in the future, and how much having the money from the sale upfront can help you. You might even consider a partial sale that allows you to keep certain assets.
No matter what you decide, however, do your best to keep emotions at bay.
Think About the Future
Speaking of staying successful for years, consider the future when you’re passing down a family business. It might be impossible to accurately predict what the business world will look like in 10, 20, or 30 years. But, you can follow certain trends and set your business up for success before you finally move on.
To do that, you need to choose someone to take over that is willing to develop their skills. Working in a family business is different from running one. So, if you have a specific family member in mind, take them under your wing. Show them how you’ve handled things, and then let them fly with their own ideas.
It’s also important to stay on board with technology for the future. For some businesses, that means creating more of a digital presence. For others, it means utilizing tech to allow employees to work remotely or to streamline your services for your customers.
Your business should also make a difference in the future. If you want to leave a legacy, it needs to be about more than just having a financially successful business. People won’t remember how much money you made or how many things you sold. They’ll remember what your business did for the good of the world, and that can create a brighter future.
Keep these considerations in mind as you decide to pass down your family business. You’ve done the work of leaving a legacy. Now, it’s up to the next generation to carry that torch.