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The numbers show why business succession planning is important

On Behalf of | Sep 27, 2019 | Estate Planning

According to some statistics, fewer than 1 out of 3 family-owned businesses actually make a successful transition in ownership from one generation to the next.

The prospects of a family-owned business making it down to the fourth generation or further are quite slim, with only 3% of all family-owned businesses hitting this benchmark.

It may be that some families simply have no plans to continue their businesses beyond the present generation. For those who do, however, succession is an important question. In fact, one survey suggested that managers and owners of family businesses or more concerned about who will run the business in to the future than they are with other issues.

Strangely, though, many owners of family businesses do not have estate plans which really account for business succession. For instance, slightly over 30% only have a will in place but no trust or other document. Trusts and other more complicated estate planning devices may be more suited when planning for a business succession.

Likewise, fewer than 40% of businesses have a formal process in place specifying who may or may not own stock in the business. On a related point, a sizeable minority of family businesses could probably work on communication between family members, as only 55% have regular family meetings.

Estate planning is an important component of business succession planning. For instance, while a person may have a successor in mind, it will be important to make sure that the intended successor receives a controlling interest in the business upon the death of the current manager. This will at a minimum require a properly drafted will and will likely also necessitate a trust or other document.