It’s Time to Consider Succession Planning

Recent surveys provide some alarming statistics. Only one percent of family-owned businesses in North America reach a third generation with family members running them. Another report shows that 30 percent of all family-owned businesses have not considered a successor, with only 63 percent having done so when the owner has already reached age 65. Finally, another recent survey shows that more than 58 percent of small-business owners list inadequate succession planning as the biggest threat facing their business.

Given the fact that 90 percent of the 18 million-plus businesses in America are family-owned and managed, it’s obvious that a solid succession plan will be important should the majority owner.

Ten Considerations Prior to Creating a Succession Plan

  1. Have a valid reason to sell or transition to new leadership
  2. Do not wait until you have to sell for economic or emotional reasons
  3. Gather the information needed
  4. Be a part of the marketing team
  5. Maintain confidentiality
  6. Think like a potential buyer
  7. Do not let things ‘slip’ because you are selling
  8. Engage professionals who understand the sales process
  9. Be patient and study every offer carefully
  10. Help create a win-win situation…This is vitally important

Nine Keys to More Effective Succession Planning

  1. Include it in your strategic plan
  2. Obtain the proper valuation of the business – Have an updated valuation of the business on hand and have that information communicated to your family or intended successors.
  3. Take the time to address who will be on the succession team – This often involves a tough analysis of whether family members (or close friends) have the needed skill set
  4. Integrate your business succession plan into your estate plan.
  5. Plan for disability – What is your fall-back plan if you’re injured and unable to work for four to eight months? Who would run the business?
  6. Identify key employees and sales agents who may have concerns with your succession plan.
  7. If the business is a ‘closely held’ business, treat it like a family, rather than as a business involving family.
  8. Diversify the business owner’s net worth from the business as a whole.
  9. Plan for contingencies

What does it take to let go?

Entrepreneurs most likely to face the fewest problems in turning over the reins are those who have a sound financial plan for retirement and are also involved in activities outside the business that provide opportunities for social contact and exercise of personal power. It is also important that the entrepreneur has confidence in their designated successor, and possesses a willingness to listen to outside advisors.  Its time for many in the real estate community to assess their succession readiness. Doing so may prove easier to do than you might think.

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