Planning ahead and seeking the right advice can help ensure the transition down the line goes as smoothly as possible and future generations can carry on the family tradition and maintain the business.
Dr Edgar Paltzer advises on succession planning for family establishments as part of his attorney-at-law practice. A definition of succession planning for family businesses can be found in the PDF attachment to this post.
Building a multigenerational legacy begins with having clearly defined objectives and developing strategies for moving forwards well in advance.
Planning for Retirement
Succession planning is part of planning for retirement. When a family business is involved, this can be more complex than other types of succession planning, as family relationships and dynamics come into play as well as business-related factors.
Over 70% of family businesses fail to make a successful transition to the second generation, with the most common issues being family discord or the burden of taxes.
It may be necessary to alter the structure of the business to ensure it can be passed on to the younger generation. As sole proprietorships and partnerships are classed as personal possessions, the business as an entity cannot be easily willed or passed on. However, a corporation can continue to operate following the retirement or death of the owner.
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Defining Succession Planning for Family Businesses
Long-Term Transitions
Ideally, a transition of ownership of a business such as a family restaurant should be a process that is done over a period of time. The potential inheritors of the business should have the opportunity to learn the business from the ground up, by working there and experiencing all aspects of what make the business successful and unique. By bringing in the person or people who will ultimately be taking over, restaurateurs can ensure the leaders of tomorrow are as knowledgeable and passionate about the business as they are themselves.
Training up the younger generation gradually ensures that when the time comes for them to take the reins, they know the business inside-out and have the skills to begin acting in a more managerial role. This also helps to keep transitions smooth for customers and other employees, without whom the business would soon fail.
Stay on Top of Finances
Passing on a business to a child or other relative is often as much an act of love as it is a professional business decision. We all want the best for our children, so ensuring their legacy is in the best possible financial shape at the time of the transition makes sense both professionally and personally.
This includes ensuring that debts are minimised, tax bills are paid on time, and that there are properly thought-out plans in place for ensuring future revenue. It can help to look at the finances of the business from the perspective of a potential buyer – if it is a company that people would be willing to buy, then it is probably in good financial shape.
Restaurant business revenue often fluctuates with the seasons, so future leaders should be prepared for how to get through the leaner months.
The short video attachment looks at the benefits of seeking an outside perspective to ensure everything runs as smoothly as possible when considering passing on a family business.
