Family Business: the Next Generation
America is in the midst of one of the greatest wealth transfers in the history of mankind. Over the next 20 years, an estimated $15 trillion in assets will be transferred from one generation to the next.
Much of this wealth transfer will be in the form of family-owned businesses. But the viability of many of these transfers is questionable. The fact is, most will fail. Typically, only one out of three businesses is successfully transferred to the second generation. Survival of a family business into the third generation is a rare occurrence.
Thousands of family businesses, some of the household names, will disappear over the next decade. The sad part is that many of them could survive with proper planning. For many, however, it may already be too late. The proper time to start planning the succession of a family business is not one, not three, not even five years ahead. Indeed, a comprehensive succession paln, which includes sophisticated estate planning strategies, generally requires at least a 10-year horizon to be properly structured.
Whether large or small, high-tech or low, public or private, every family-owned business is different. But regardless of how diverse they are, four key elements must be in place before a business can be successfully passed from one generation to another.
Plan Your Succession Management
Owners / founders are extremely driven and dynamic. Often they excel at more than one skill. In many cases, production experts are also marketing geniuses or skilled financiers. Replacing them may require more than one person. Therefore, family business owners should determine exactly how the business functions by creating organizational charts. Each key member of the succession process should create his or her own chart. These charts should then be compared. The differences will point to gaps in the management structure and highlight areas of misunderstanding and differences in perception.
Take Judy, for instance. Judy owns a software company and has three children ---a computer whiz, a racecar drive and one with a business degree but no interest in the company. In addition, Judy has a strong management team in place. In her case, she should consider giving ownership to children, but continuing to have the management team run the business.
Finding people from within the family, or from outside, to fill those spots may not be easy, nor happen overnight. Therefore, it is vital to develop an action plan and timetable early in the process in order to allow for an orderly transition of responsibilities.
Few businesses, even family businesses, grow without the help of loyal employees. More often than not, they hold key positions in management. Therefore, you must keep your employees informed about long-range succession plans. Key managers must have a clear picture of where they stand and what their responsibilities will be in a succession-management structure. Develop a compensation and benefit structure that is sufficient to attract and retain key managers as well as to motivate them to perform in the best interests of the business and the family.
There is also the matter of timing. The children you hope will take over may be too young or inexperienced when you retired. In such cases, transitional management teams may be formed to provide interim management until the children are properly trained and seasoned to be in a position to manage the business successfully.
Define Family Employment Practices
Establish a clear employment policy for family members and stick to it. Most parents believe their children should be treated equally. Company executives, however, must be selected on ability. Selection should be made on the needs of the business rather than on the needs of the children.
For example, Jim owns an electric company. He treats his three children equally---all three work for the company and receive the same salary. All three, however, do not work equal hours, nor are they all dedicated to the business. Instead of benefiting from the equality, there is discord and resentment in the company because only one child really works.
Parents can pass on their legacy to their children without necessarily giving them control of a company. When the children are not suited to take over the business-about 30 percent of the time-other methods can be found for them to share in the family wealth.
However, if you do determine that a child will carry on the business, you should be sure your choice is capable. Ensure that he or she will receive the right education and business experience.
Outside job experience is extremely useful for children who will one day assume control. Working outside the family business can give them valuable experience, expose them to differing management styles and give them the confidence to know that their successes are their own. Often they will receive better mentoring and more opportunities to take responsibility than they would in the family business. Proving themselves outside the family business also gives children greater credibility with employees when they do eventually take control of the family business.
For those families that insist their children begin their careers at the family business, children should start at the level that their education and experience justify-even if it means sweeping floors, operating a machine on the factory floor, etc. The experience will be invaluable. In addition, working their way up from the bottom will increase their respect among employees and management. In our experience, children who develop in this manner are twice as likely to succeed than children who assume unearned executive positions.
Establish and Maintain Family Harmony
Rivalries and jealousies can be extremely time-consuming, not to mention destructive. Once children have grown, married and have children of their own, they are considered a separate family with different -and sometimes conflicting-ideas. If the business is large enough, consider seating an outside board of directors to ensure that the interest of the family and business are properly balanced.
Develop a family business vision document to make certain family members-as well as employees, suppliers and customers-understand the future of the company. Used family council meetings to communicate to all family members about the company and issues facing it now and in the future.
Companies and families that communicate often, honestly and on a timely basis increase their probability of surviving and prospering.
Plan Your Estate
Poor estate planning has led to the demise of more family businesses than any other cause. In many of these cases, the liguidity needs caused by estate taxes due on the value of the family business are far greater than the business can absorb.
In most cases, life insurance may be an effective way to cover estate taxes. However, the cost of life insurance for a business reinvesting most of its capital in growing the business usually makes the insurance an impractical solution for the entire estate-tax dilermma. In most cases, there is a need to utilize other planning techniques to minimize estate-tax costs.
That was the case for a grocery store owner who spent all of his capital on expanding the business and not buying insurance. Unfortunately, he died after completion of the renovations. There was nothing left to pay estate taxes, so the family had to sell the business.
With the help of your advisors, find ways to reduce or manage the transfer taxes. Again, it is important to start the process as early as possible.
These are the four "must" elements. However, underlying all of them is a willingness to make difficult decisions and do what is best for the business and the family.
Dealing with succession issues may cause you discomfort or even great pain. However, if not addressed early in the succession process, these very same issues will come up later when it may be impossible to deal with them. Remember, your ultimate goal is the survival of the company so that your children, employees and community continue to derive the benefits your company provides.
The best way to assure the existence of the family business into future generations is to deal with issues in a comprehensive manner well before the final succession is to take place. For the overwhelming majority of family businesses, that means now.
[本帖最后由 dragong 于 2008-1-31 16:26 编辑]
