More US adults are starting a business than ever before. According to the United States Census Bureau, 2020 saw a record 4.4 million new business applications filed. In 2021, this number jumped to 5.4 million—up 53% from pre-pandemic levels—and in 2022 the trend shows no sign of slowing. The entrepreneurial spirit is thriving and yet many family business owners overlook one important aspect of long-term success: succession planning.
What Every Family Business Owner Needs to Know About Succession Planning
You’d be hard-pressed to find better advice than Benjamin Franklin’s famous observation that “failing to plan is planning to fail.” This is especially true of running a family business, where foresight matters more than anything else. And it is even more true of enterprises that seek to survive across generations. Only 30% of family businesses last into the second generation and only 12% into the third—and of the ones that do all have succession plans.
A business succession plan is not just a roadmap to intergenerational continuity, however. It is also a tool that ensures your business thrives and grows in the present such that it continues strong when, one day, you pass it on. You can’t have longevity without foresight and this is exactly what a business succession plan provides.
Three Steps to Successfully Planning for the Future
Starting a business is the easy part; keeping it thriving is the real challenge. While the future is full of unknowns, a little bit of strategizing goes a long way in seeing you through whatever adversity you may encounter. If you’re new to running a business, here are three essential tips to get you started:
Succession planning isn’t something you do when you’ve established a profitable business and are nearing retirement. Rather, it’s the very tool that allows you to arrive at the enviable position of having a valuable enterprise to pass on. In starting now, you project a course that not only provides direction but includes instructions on how best to make it to your destination.
Articulate Your Vision
When you know the “why” behind what you’re doing, the doing, itself, becomes easier. All successful businesses are held together by a vision and so if you want yours to endure after you’re gone, you need to put your vision to paper so you can pass it on.
Identify a Successor
Whether you have a person in mind or not, the first thing you need to do when identifying a successor is determine the skills they will need to succeed. While it’s easy to assume that the best person would you reincarnated, this is rarely true. Your business has grown in step with the market and will continue to do so. Your successor will operate in a new climate and thus, will need new skills. Your job is to exercise the foresight needed to anticipate what these may be.
Having completed the above, the next step is to speak to an experienced estate planning attorney. They, in conversation with your trusted advisors, will guide you through drafting a plan that not only commits your vision to writing but accounts for all of the legal and bureaucratic details you will need to consider.