| Liquidating the family business in order to
pay estate taxes is often a grim reality for families of individuals
who die without wills or estate plans.
If you own a family business, you need to take steps now to
help ensure that one of your most valuable assets will still
be around for your children, grandchildren, and beyond.
The facts on family-owned businesses
The terms "family business" or "small business" can
be misleading, especially when you consider the impact these
businesses have on the U.S. economy. Of all small companies in
the U.S. employing fewer than 500 people, 88% are owned by families.
According to an estimate by the National Family Business Council
(NFBC), 12.9 million family-owned U.S. businesses generate 60%
of the gross national product and employ 40 to 50 million people.
It's natural to assume that many business owners would like
to keep this kind of influence in the family. However, in reality,
the situation is much different: only a fraction of business
owners who want their family business to remain in the family
actually take steps to plan a formal succession, according to
the Boston-based Family Firm Institute.
Why do so many business owners fail to act on their intentions?
Because business continuation is often a difficult subject for
family business owners to confront. In many cases, the subject
of succession is avoided rather than planned for. It is often
a taboo topic.
Business owners may be reluctant to hand over something they
spent much of their lives building. They may be forced to confront
and resolve sibling rivalry and other unpleasant family disagreements.
Sometimes an owner will have greater difficulty grooming a family
member for succession because of the overlap of family and business
boundaries. Additionally, if the owners plan to rely on the family
business for retirement income, they may worry about the business's
success under new owners.
But the costs of not planning for the continuation of family
businesses may be enormous. Often, companies without formal succession
plans are courting disaster. NFBC statistics show:
- Only 4 in 10 family businesses survive into the second
generation.
- Only 1.5 in 10 survive into the third generation.
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Survival planning for your family business
How can you make sure that your business avoids becoming one of
these statistics? A sound solution is to establish an estate plan.
Simply put, you need to:
- Develop a formal management succession strategy and ensure
that your business stays in the family after your death.
- Equalize
your estate so that if you have children, you can make
alternative bequests to those who do not want
to be involved with the family business. At the same
time, you can leave the business to the children who do.
- Guarantee
that the business continues in an orderly manner after
your death.
- Create a buy-sell agreement for family and non-family
members who may own stock in your business.
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As you can see, ensuring that your business lives on is a complicated
issue that engenders many concerns, and care must be taken to ensure
that all issues will receive open and honest discussion. With the
right estate planning team and the right succession plan in place,
you can go against the statistics to maintain your company's success
and ensure your family's ownership for future generations. |
