Family Business Succession: The Advantage of Focusing on People
Many people are reluctant to communicate their true expectations for the future.
Many people that have achieved affluence have done so through an entrepreneurial spirit that led to a successful family business. However, as they get older, what do they do with it? Try as they might, they cannot run it forever. A family business can represent significant family legacy as well as opportunities for wealth creation and employment. For many, keeping the business in the family by transitioning it to the next generation is the preferred alternative. Owners’ objectives must change from building the asset to getting value out of it, while supporting the vision for generational succession.
There are many mechanisms to preserve value and support a seamless transition of ownership: buy/sell agreements; shareholders’ agreements; freezes and trusts, etc. However, human variables such as behaviour, attitudes, and individual objectives will affect the likelihood of success far more than the degree of tax-efficiency.
The family business is often the central platform through which the family interacts and lives out its emotional life. Past hurts and habits can significantly impair an individual’s ability to participate in the process objectively. Also, many people are reluctant to communicate their true expectations for the future and important people can be excluded from the process. Even the best laid plans can be derailed by the actions of a single individual.
Business succession within the family is a challenging venture revealed through the fact that only about 30% successfully transition even to one generation. Many people begin with some technical help and good intentions, but the process can quickly break down.
Because people are involved! The good news is you can quickly improve your chances of being in that successful 30% by undertaking intentional succession planning supported by a qualified advisor. Covenant Family Wealth Advisors is uniquely specialized to come alongside business owning families to address both the technical and human sides of this equation.