Continuing our discussion about what we do, the next four blogs will focus on each of the practice areas that we focus on within the firm.

Let’s look at Family Business Succession Planning first.

Family Business Succession Planning is just that, it is planning how to pass the business on to the next generation.  So, what we are really talking about here is Management Succession of the business.  Oftentimes, the current generation knows a great deal about the business.  Much of this knowledge is based on the experience of running the business for many years.  In order for the next generation to be successful, this knowledge must be passed on.  So the big question becomes how to do this, how to pass on the knowledge and experience gained through years of practice.

Typically, the process takes anywhere from 5-10 years. On the surface, it may seem like this is a long time, but let’s think about this a little bit.  The business has been operating for thirty, forty years, or maybe even longer.  More often than not, very little of the experience (the successes and mistakes) has been captured in anyway that can be easily passed on.  It may even be that for the most part, the business has been run on intuition or experience gained prior to opening the business.  Without a way to pass on that knowledge and experience, much of the operations are left to chance when the next generation takes over.

What happens?  The business gets passed on.  The agreement is that the new generation will make payments to the earlier one.  These payments become the basis of retirement.  If something happens to the business, then the payments stop.  No more retirement.  This happens all too often.  In fact, the survival rate of businesses into the second generation and beyond is as follows:

• 30% survive into the second generation
• 12% survive into the third generation
• 3% survive into the fourth generation or beyond

However, for those businesses that plan, the success rate is much higher.  The further ahead planning takes place the better the chances for the business to survive.  The chances of survival are as follows:

The Plan

With all of our clients we always stress the importance of having a strategic plan.  Typically, a strategic business plan covers all areas and operations of the business.  It provides the blueprint for everything the business does.  Succession planning is no different.  Developing a plan, along with a timeline for when each step will occur, will provide a guide for how the business will be passed from one generation to the next.

Developing a plan will also help answer many questions.  More often than not, we are able to make better decisions when we have the time to think about answers to questions versus having to make immediate decisions without all of the facts. 

Having to make immediate decisions in business happens often enough.  When we have the time to develop a plan, we need to take advantage of the opportunity.  This insures fewer things are left to chance, especially when we are looking at not only our future, but the future of our children and grandchildren as well. 

Much more could be said about planning and it’s importance, but we’ll leave that for another time.