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Succession Planning for Your Business

(October 2016) posted on Thu Oct 20, 2016

When it comes time for retirement, should you sell your company or pass it along to your family?

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By Marty McGhie

A well-known business from our area experienced significant growth and a high level of prosperity for many years. The founder had a number of children involved. Then came time for his retirement. He left the business to be divided up between his kids, and a short time later, passed away. Since then, the business has been a disaster. Due to the lack of a specific succession plan, the children have fought over control, leadership, daily management, etc. Today, they’re on the verge of collapse and are no longer experiencing the success their father built over so many years.

This is just one of thousands of similar stories of next-generation business failure. Most of these sad accounts are due to the lack of a good succession plan. In fact, the Harvard Business Review states that 70 percent of next- generation family-owned businesses either fail or are sold before the next generation gets the chance for success. In spite of its importance, succession planning is a topic that you as a business owner may not wish to think or talk about, but avoiding this subject could very well be the cause of your business failing in the future.

When it comes to succession planning, you have three options to contemplate. You can choose to liquidate by selling your assets, paying off your liabilities, shutting down, and collecting any excess cash after the company is dissolved. You can sell to an outside party. Or, you can pass your business down to your family members. The first option is not typically a viable one because there’s almost always value in keeping the business operating in some fashion. So, let’s focus on the other two options: Do you sell your business or pass it along to your family?