Brian Ostrander, financial advisor with
Edward Jones Financial in Glens Falls.
BY BRIAN OSTRANDER
There’s nothing more important in the world to
you than your family. However, your family-owned
business probably helps support your family. So,
when it comes to protecting both your family
and your business, you need to carefully consider
your moves.
As you know, you face plenty of challenges to
keep your business running smoothly — but it can
be even more difficult to pass the family business
on to your children or other relatives. In fact, according
to the Small Business Administration, only
33 percent of family owned businesses survive the
transition from first generation ownership to the
next generation.
Why is it so hard to keep a family business intact?
Sometimes, it’s because no one in the family
is interested in running the business — but family
businesses frequently disintegrate because of the
lack of a succession plan.
To create a succession plan, your first step — and
possibly the most important one — is to collect the
thoughts and preferences of family members on
their future involvement with your business. It’s
essential that you know who wants to really do the
day-to-day work and who is capable. During these
conversations, you’ll also want to discuss other key
business-succession issues, such as the retirement
goals and cash flow needs of retiring family owners
and the personal and financial goals of the next
generation of management.
In developing a plan for the future of your business,
you will need to determine who will control
and manage the business, and who will eventually
own it. These decisions will depend on a variety
of factors, such as the time horizon, goals and
financial needs of the family members involved.
Your succession plan could be based on a family
limited partnership. Under this arrangement, you,
as general partner, would maintain control over
the day-to-day operation of your business, but,
over time, you could gift or sell limited partnership
shares to your family members. And eventually,
you would also relinquish control of the business
to whoever is going to run it.
Another component of your succession plan
might be a “buy-sell” agreement, which allows you
to name the buyer for your business — such as one
of your children — and establish methods to determine
the sale price. Your child could then purchase
a life insurance policy on your life and eventually
use the proceeds to buy the business, according to
the terms established in the buy-sell agreement.
We’ve just skimmed the surface of techniques
that might be used alone or in combination to
can be complex, so you will certainly need to consult
with your legal and financial professionals. It’s
important that you fully understand the business
and tax implications of any succession plan, as
well as the financial effects of a plan on all your
family members.
In any case, once you’ve created your succession
plan, you’ll need to work with your legal advisor to
put it in writing and communicate it clearly to all
family members. Surprises are welcome in many
parts of life — but not when it comes to transferring
a family business.
You want to leave your family a legacy. And if
that legacy is the family business, do whatever
it takes to pass it on in a manner that benefits
everyone involved.
Ostrander is a financial advisor with Edward
Jones Financial in Glens Falls.