From: bizjournals.com/boston

Image credits: GETTY IMAGES (ILBUSCA)

Building and maintaining a successful family business over multiple generations can pose significant challenges for families. As families expand and businesses grow and prosper, it can become complicated to ensure everyone has a role they are suited for and that promotes ongoing business and personal fulfillment.

While it is inevitable that complications will arise, there are steps families can take to enhance the likelihood of long-term business sustainability.

“Owners of family businesses are aging, a recent survey suggests that 51 percent of business owners intend to transition the ownership of their business by 2025,” said Jill Shipley , managing director of Family Dynamics and Education at Abbot Downing. “Whether you are contemplating selling the business to a third party or passing to the next generation, you need to plan ahead.”

By addressing these best practices early, a family is more likely to create a plan that will allow each family member to contribute to success of the business and family legacy.

Plan early. Consider building an exit strategy into the business plan.
Educate the next generation. Have a comprehensive education plan to help the next- generation family members become responsible, educated, and competent regarding business and money matters. Schedule regular meetings with family members and heirs to review family business plans, financial reports and discuss family business.
Promote open communication. Create a formal process for communication that is an open, ongoing discussion between parents and children to help set realistic expectations and uncover any concerns or conflicts.
Work with an advisor. Select advisors who have worked with family-owned businesses in the past and who have experience in succession planning, family business transitions and navigating family dynamics.
Anticipate potential conflicts: Have a written business plan that’s reviewed regularly with your transition team to address where potential conflict might arise and where there might be risks. Family business financial transitions are closely tied to emotional decisions that can potentially cause conflicts within the family. For example, an owner may want to pass the business to the next generation, but there isn’t always an heir apparent, or perhaps the situation or timing just isn’t right.
For rising-generation family members hoping to take on a leadership role and sustain the enterprise into the future, there can be additional hurdles. Always looming is the research that 70 percent of family businesses are sold or do not survive beyond the founder’s generation and only 3 percent are preserved into the fourth generation.

“There are many factors to consider when it comes time to transition a business,” said Melissa Landay, regional vice president of Wells Fargo’s Middle Market Banking in Greater Philadelphia. “Timing may be a consideration where headwinds in the industry could potentially impact the value of the business. There are also cases in which there is not an obvious heir apparent to take over the family business and continue a successful legacy.

“In instances of illness or a death in the family, a transition may need to happen sooner than intended. And of course, families often seek to diversify their wealth or the business may need capital to grow and the owners simply may not be comfortable taking on the debt required for that growth.”

The key to a successful transition is involving banking partners in the conversations early in the process. Whether it is a company sale or a true generational transition, experienced banking partners are there to prepare the company to ensure they are doing the right things to minimize the tax implications or set up family or philanthropic trusts.

Early planning, a shared vision, clear communication and a formal succession plan are all important to whether a family transitions to the next generation or collectively decides to sell the business. Many relationships are entwined with the success of the business, so the stakes are high. Successfully executing the plan is the best way to create a legacy for both your family and your family business for generations to come.