Family Business Transfers
Part One: Can Family Business Transfers Succeed?
What could be easier than transferring your family business to its natural successor, your heir apparent, your offspring? If some of your first guesses were peace in the Middle East, bi-partisanship in Congress, or the Chicago Cubs winning the next World Series, like me, you have probably witnessed your share of family business transfer disasters.
Statistics, widely quoted by estate planning writers, indicate that "only" one-third of all family-owned business are passed on to the second generation, and "only" ten percent of family-owned businesses are transferred to a third generation. Experience indicates that those statistics are wildly optimistic and overstated. My pessimism notwithstanding, some family businesses are indeed successfully transferred to younger generations. For the transfer of business ownership and control from parent to child to be deemed "successful" the parents must achieve all their exit objectives, including:
This, and the next several issues of The Exit Planning Navigator® describe this challenge: if it is so difficult to successfully transfer a business from one generation to the next, is there a way to improve the likelihood of success? Better yet, is there a nofail "recipe?"
In the checkered, but always interesting, history of nepotism (as it relates to business transfer) we find that parents hope a child will take over a business for several reasons:
Doesn't this all sound great? It is great, but all too often your hopes and aspirations crash headlong into the brick wall of reality.
All business transfers are challenging yet family businesses face significant obstacles. Despite this, it is indeed possible, given the right circumstances, to successfully exit the business by transferring it to your children.
There is a "recipe" for creating a successful intergenerational transfer. It isn't the only recipe that works, but because it depends on six carefully chosen ingredients, its chances for successful completion are greater than others. In the next issue of The Exit Planning Navigator®, we will look at the first ingredient in this special recipe.
Subsequent issues of The Exit Planning Navigator® discuss all aspects of Exit Planning.