Increasingly, more businesses fail to pass on the reins to the next generation, either through a lack of planning, or simply because younger family members may be terribly ill-equipped to take on the burden of responsibility.
In a lucid piece shared online (Many Boomer Retirees. Few Succession Plans), Private Wealth & Family Office expert, Abiola Adediran, weighs in, outlining the several challenging familial conditions that may exist (often in combination), and sharing thoughts on how so many of these obstacles could be remedied with some forethought and openness.
Adediran says:
The baby boomer generation owns a significantly large slice of the entrepreneurial pie — about 40% of businesses which are largely family-owned.
The cresting wave of boomer retirements has led to unprecedented transitions in the ownership of privately held companies. And despite owners’ best intentions, sometimes these transitions do not go smoothly because there are no exit plans, making it far more difficult to transition their businesses.
It’s important for family business owners to determine their goals, if they want their business to be sold or how they want it to be transitioned.
Many retirees transfer ownership to existing partners or to younger family members. Others sell to third parties, including to private equity firms and competitors. Yet another option is to establish an Employee Stock Option Plan (ESOP) and effectively sell the company to its employees. Finally, in the absence of a going-concern business, an owner could liquidate and sell assets in piecemeal.
However, an owner’s best-laid transition plans do not always align with those of other principals, including their family members. Disagreements in companies owned by multiple family members tend to bubble up to the surface as companies approach transitional events.
These risks are ever-present but can be mitigated with planning and a proper understanding of the business owners’ rights, duties and obligations to the other owners. This will reduce the risks of dispute, establish better governance, foster more certainty and, finally, provide for a better path to retirement.
Start your planning now and that’s what a family office will do for you, because playing kick the can will hurt you in the long run.
Read the full mind-share here
ADDITIONAL ONLINE RESOURCES
- Resource 1: Does Your Family Business Have a Succession Plan? [Harvard Business Review]
- Resource 2: Dispute over Aretha Franklin’s wills shows importance of estate planning, financial expert says