How to Save the Family Business for the Next Generations

With only 12 percent making it to a third generation. Research on family-run businesses has identified five key factors that ensure longevity:

A willingness to reinvent. A key trait of family businesses that thrive through generations is a willingness to reinvent themselves, either through new products or markets.

Skill as key criteria for employment. Businesses that hire and retain family members to work in the family business based on their skills rather than their bloodlines survive longer and are generally more successful than those that have no standards for family involvement.

Good succession planning. Successful family-owned businesses endure because they have good succession planning practices in place. Having a succession plan is key to passing a business down successfully through the generations.

Outside advisors. Companies that use outside advisors to assist with major decisions are more likely to survive; these advisors can also help family employees avoid business disputes.

Buy-sell agreement. Not everyone in succeeding generations may be willing or able to be involved in the family business, but you can be sure they will want their fair share in equity. A buy-sell agreement will help maintain control of the family business by governing how successors are able to sell or transfer their interests in the business. It is also a useful tool for helping family members meet their individual tax objectives.

Having a business succession plan ensures a smooth transition and increases the odds that your family business will survive beyond your leadership. A business succession plan can also help you minimize tax obligations as well as help make provisions for the current generation’s retirement from the business without adversely affecting the company’s financial stability.