Family Business Transfers
Part Six: The Recipe for Success
Ingredients 5 and 6
In the first five parts of this series on family business transfers, we described the obstacles to such a transfer and the first four ingredients of a specific recipe for creating a successful intergenerational transfer. The first ingredient in that recipe is to engage in the Seven Step Exit Planning Process™ (modified slightly for family business transfers). The second is to allow only one child to succeed in business ownership. The third is to design a transition that is fair to all children. The fourth is for the parents to achieve financially security before transferring ownership or control. (For a copy of any one of these issues, please email email@example.com.)
Today we look at the fifth and sixth ingredients:
Fifth Ingredient: The chosen child MUST demonstrate the capability and willingness to run the business for a significant time period (at least three years) before the parents leave.
How does a parent know whether a child is capable and willing to run and own a business? One of the best indicators is the parent's past willingness to take extended vacations without calling the business to just "check up on things." Of course, handling day-to-day issues does not tell you if the child is capable of being a long term owner who can handle larger issues of growth, future competition, and economic down-turns. Your job is to prepare the child for future business risks as you would any key employee: with training, responsibility, education and example. It is at this point that the assistance of advisors can be most valuable.
Sixth Ingredient: Having a Plan B.
As one assembles and prepares the ingredients for a recipe, any number of things can go wrong. So it is too with an intergenerational business transfer. That is why having a back-up plan is crucial. Let's look at the most common causes for employing your "Plan B."
For all of these reasons, it is important that a back-up plan exist. If the business transfer goes awry you must have a "Plan B."
To increase your chance of successfully completing an intra-family transfer you must focus on the six ingredients shown below.
If you have any questions about creating your own successful family transfer, please email or contact us.
Subsequent issues of The Exit Planning Navigator® discuss all aspects of Exit Planning