The Complexities and Issues of Business

A chief concern for many business owners is how to arrange the orderly transfer of business to the next generation of family members or key employees. By far the biggest concern is how to keep the family business and the family. It is estimated that more than 70% of family-owned businesses do not survive the transition from the founder to the second-generation.

There are essentially three levels of the business succession plan.

Management; this is day-to-day management of the business which can be left to one person, one child or a group  of children. Also, this group might not be active in the business. This group could also include key employees rather than family members

Ownership; most owners would prefer to leave their businesses to the children that are active in the business. However, not all the children might be involved. Owners would still like to treat their children fairly, but not necessarily equally. Consequently, if the business interest is not left to a group of children, some other value would be left to the non-business children. A subset of this topic is whether the business owner will need a continued economic benefit from the business after the transfer. Also, will the business owner continue to control the business after the transfer is complete.

Transfer taxes; estate taxes can erode business value.   The question would be is there enough liquidity to take on the debt and keep the business going? This is truly a challenge to high-value business especially with a estate tax being a moving target as to the exemptions and percentage of taxations.

 Level I management

It might take many years for an owner to train the successor management team so that the business can run automatically. This allows the owner to walk away from the day by day operations. To do this the owner must give up control and tasks in which they ordinarily controlled. This is easier said than done. Whether the owner creates a management team with the next generation, or a key group of employees, the owner must learn to delegate important tasks.

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