Family business ownership succession planning is an important issue with regards to family businesses in the United States. The necessity of family business ownership succession planning is always a matter of priority for family businesses.
About Family Business Ownership Succession Planning
At the present time, 80% of the family businesses are regulated by the founders of those businesses, however, things are changing in the family business scenario, which presents the requirement of family business ownership succession planning as a matter of utmost significance.
Family businesses are those businesses, which are possessed, regulated, and handled by family members of one or many families.
Family business succession planning principally focuses on the ownership succession planning matters.Approximately 40% of the businesses owned by families anticipate that the leadership of their firms is going to be altered by the year 2008 and more than 50% of the businesses owned by families anticipate that the leadership of their firms is going to be altered by the year 2013.
Around 30% of the businesses owned by families have a CEO (Chief Executive Officer) who is aged more than 60 and has an average age of 54. 11% of those CEOs (Chief Executive Officer) are aged more than 71. Irrespective of the age of the Chief Executive Officer (CEO), it is never too soon to start family business ownership succession planning. 88% of the present owners of family businesses consider that the same family or families would be regulating their businesses in the coming five years; nevertheless the statistics on succession weaken this consideration.
Statistics show that approximately 30% of the businesses owned by families make it to the second generation, 12% are able to make it to the third generation and only 3% of the entire numbers of businesses owned by families are able to function in the fourth generation or farther. This is indicative of family business failures and one of the principal reasons behind this may be the absence of family business ownership succession planning.
Following are the most basic mistakes or omissions under family business ownership succession planning:
Planning in a vacuum
Bequeathing the business to the living spouse
Fair treatment to children
Following are few reliable and established standards for estimating the strength of family business ownership succession planning schemes:
1. Time required = 10 years or more
2. Planning and documentation required in the “drop dead plan”
Ownership succession plan
Buy-sell agreement or shareholder restriction
Management succession plan
Get home from the funeral plan
3. Planning and documentation required in the lifetime plan
Ownership succession plan encompassing the functional changeover from senior generation family members to junior generation family members
Management succession plan encompassing the departure of family members of the senior generation and the debut of family members of the junior generation
Financial planning and perfunctory evaluation for the welfare of the firm (which may have to financially back up two or more generations)
Financial planning for the welfare of family members of the senior generation