Not everything in life needs to be started early. Baseball hitters shouldn’t swing before the pitch is thrown; gardeners shouldn’t harvest their vegetables before they’re ripe; and people shouldn’t take on tasks before they know what they’re signing up for.
Planning for the transition of a business, however, is not one of those things. It is truly never too early to start thinking about your business’s future; in fact, the earlier planning is begun, the better the results. This article describes the two most popular forms of business transitions and why early planning is important.
As first-generation business owners move toward retirement, many would love to keep their business in the family, transitioning their leadership positions to their own kin. However, statistics show that only 30 percent of family businesses survive to the second generation. Going further, only 12 percent survive to the third generation, and a scant 3 percent survive beyond the third generation.
Why is it so difficult for owners to successfully pass down the family business from generation to generation? Part of the reason is a lack of early planning.
Many business owners too often assume they can simply pass the reigns to their children or grandchildren when the time comes to retire. A successful transition, however, requires early consideration of the following questions:
While some of these questions can be answered later in the process, others must be addressed early. This is a time-consuming process spanning several years (often a decade or more) and should not be rushed. Beginning the process early may even rule out the possibility of an intra-family transfer and lead to the other popular forms of business transition.
A transition to family members may not be feasible or desirable for a variety of reasons. In this case, a sale to an outside party is a common option. But here too it is important to begin the planning process early. Preparing a business for a third-party sale entails much more than simply staking a “For Sale” sign in the ground and waiting for the phone to ring. Prudent owners will consider the following:
This is not an exhaustive list, but it highlights the need to begin planning early. Early efforts to answer all of these questions not only helps the final sale process run more smoothly, it also maximizes the business’s final sale price.
As the saying goes, “the best way to get something done is to begin.” In the context of planning for family business transitions, the best way to get it done is to begin – early.
So, what are you waiting for?