An effective business succession plan provides the framework for the future of your business—and your family
Business transition planning is a critical concern that family-business owners often put aside while tending to the day-to-day responsibilities and activities of managing their businesses. But it's an important issue that is most effectively addressed with early attention and action.
Succession planning is crucial for sustaining family enterprises for generations. An effective plan is far more than the selection of a successor. It also includes ongoing leadership development and communications to help avoid unnecessary conflicts and to meet the needs of both the business enterprise and family members.
The succession plan can assume that everything will go well, but it also must include contingencies for unexpected issues such as disability, disagreement, divorce or death.
Research commissioned by BB&T Wealth identified the greatest roadblocks to being prepared for a business succession event. Here are some key findings of that study, a random sampling of businesses valued between $1 million and $100 million and spanning a wide range of industries:
- Level of succession preparedness – On a scale of 0 to 8, with 0 being totally unprepared and 8 being fully prepared, study participants received an average score of 3.13, indicating a moderately low level of succession preparedness.
- Owner characteristics – The intent to transfer the business enterprise to family and the intent to manage wealth together as a family across generations were found to be important predictors of how prepared a business was for succession.
- Enterprise characteristics – Business performance, retirement timing, family members' interest and organizational size are among the many factors influencing succession preparedness from the enterprise perspective.
- Family influence – Family cultures have a high impact on family enterprises. Understanding the family culture and family members' views of the business help determine potential business transfer options.
- Business formality – The level of formality of a family enterprise affects business longevity, business and family morale, and business value. It also impacts how attractive a business may be to a buyer. Examples of business formality include having a clear mission, key management development plan, job descriptions, set compensation plans, career paths, a regularly updated strategic plan, documentation of business processes, a fully functioning board, organizational chart and employee manual.
- External environment – Businesses operating in larger metropolitan areas are more likely to be prepared for succession. This is due in part to their having greater access to professional services that can help them with succession planning and greater access to talent who can help them formalize the business. Applicable tax laws also may affect succession plans.
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