Startling Facts. Family run businesses make up a significant portion of the US Economy. Yet, merely 12% of family run businesses survive into the third generation. Thus, 88% of family run businesses fail at, or prior to, the third generation. One of the primary reasons for such failures is failing to groom a successor with a business succession plan, i.e., failing to prepare an effective transition model that addresses industry specific challenges. Estate planning attorneys have to consider: (i.) the best business model for the inevitable transition and (ii.) what is fair to those affected by it (family members, customers, workers, and others).
Stages – Business Succession Planning. A successful business succession plan will:
- Involve meetings with individual family members to explore goals and objectives;
- Set the transition goals and objectives, including the legal contracts/framework for the same;
- Explain the transition to family members, customers, workers, and others;
- Make use of an internal dispute resolution platform during the transition (count on disputes, always, but with an effective dispute platform, you can also count on resolving them);
- Time the management transition with dates and/or benchmarks; and
- Create a platform for expectations, change management, and communication with family members, customers, workers, and others.
The Take Away… A good business succession plan is a process, not a single transaction. No template/form fits all business models. Thus, good estate planning lawyers use carefully tailored plans to help family run businesses evolve into legacies.