Help Chart the Future of Your Family Business

A recent survey found that 27% of business owners expect to hand off their businesses in the next five years. And even though more than half of the business leaders who plan to retire believe their companies will stay in the family, it has been estimated that only about 36% of American family firms actually are passed on to a second generation.¹

The transition from one generation to the next is considered to be one of the biggest risks to the survival of a family-owned business, so it’s somewhat surprising that 47% of family firms have no formal succession plan.²

A thoughtful succession strategy not only outlines when and how ownership should be transferred but also takes tax implications, family relationships, and other sensitive issues into account.

Management Succession

Think realistically about who is most capable, motivated, and/or prepared to run the business. Because it may take several years to groom a successor, it’s important to identify potential candidates early. If no family members are interested in leading, you may want to consider tapping someone competent from outside the family.

Ownership Succession

Family members who are not willing to take on significant operating roles may still want to retain a stake in the company. How you decide to divide your ownership shares among your heirs and business partners could have a major influence on the future of the company. Involving family members in the process may help promote a smooth transition.

Keep Taxes in Mind

Because tax laws tend to change frequently, it can be critical to stay on top of potential estate tax issues. Trusts, buy-sell agreements, and/or insurance policies may be used to help reduce taxes or provide the funds to help pay them.

It’s a shame that some businesses must be sold either to pay estate taxes or because family members can’t agree on how to move forward. Forming a plan well before you intend to retire could help ease the transition to the next generation.

1–2) PricewaterhouseCoopers, 2010

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Charles Richard Derrick, Registered Representatives of Park Avenue Securities, LLC (PAS). Securities products and services are offered through PAS, 954 Ridgebrook Road, Suite 300, Sparks, Md. 21152, 410-828-5400. Field Representatives, The Guardian Life Insurance Company of America, New York, New York. PAS is an indirect, wholly-owned subsidiary of Guardian. Derrick Financial Group is not an affiliate or subsidiary of PAS or Guardian.

Stephen Lee Derrick and Charles Lee Derrick, Registered Representatives and Financial Advisors of Park Avenue Securities, LLC (PAS). Securities products/services and advisory services are offered through PAS, a registered broker-dealer and investment advisor, 954 Ridgebrook Road, Suite 300, Sparks, Md. 21152, 410-828-5400. Field Representatives, The Guardian Life Insurance Company of America, New York, New York. PAS is an indirect, wholly-owned subsidiary of Guardian. Derrick Financial Group is not an affiliate or subsidiary of PAS or Guardian.

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