(As originally appeared on Hawaii News Now)
Only about one-third of family businesses successfully transition to the second generation. So how can family businesses increase the odds of success?
There is a five-step process that can really help.
Step 1 is, establish goals and objectives. Create a succession plan. Make sure each generation is in agreement on the vision, goals and future objectives for the business.
Next, Step 2, establish a Decision-Making Process so that family members know how what to expect and also a process for resolving disagreements. And make sure you put a succession plan in writing and communicate that plan to family members.
Step 3 is to establish the succession plan. Identify roles and responsibilities for all family members.
Step 4 is to create a business owner and estate plan, so when the business is sold to the second generation or the original owner dies, there’s a plan in place that helps reduce taxes and delays transferring stock in the company. Make detailed plans instead of leaving things to chance or confusion.
Finally, Step 5 is to create a transition plan. Will the second generation buy the business, will it be gifted? Or a combination? If the business is going to be purchased, look into financing options.
Many family businesses do fail to pass between generations. But, if you take the time and energy to plan a smooth transition, you can keep the family business in the family for generations!