Family-owned businesses are the backbone of the U.S. economy. According to the Conway Center for Family Business, they account for nearly 65% of the U.S. Gross Domestic Product (GDP), and create over 60% of America’s jobs. Family businesses are unique in that they typically depend on the strength, energy and vision of the founder for survival, and this can present a major challenge when it comes time for the founder to transition out of the business. 
Planning for the Inevitable Change: For all business owners, the time will eventually come when a change is necessary. They will either need to reduce/diminish their role, turn the operation over to the next generation, or sell the business. The direction you decide to go in your family business depends on your specific circumstances. That said; the importance of planning well in advance couldn’t be understated.
To ensure you have a strong business succession plan in place, it is important to take several steps ahead of time. Here are three of the most essential:
Set Out a Future Vision for the Company: Call a meeting with the whole family as well as all the key members of your business to map out goals for the future. Some questions you might want to address include how big you want to get, how many locations you want to have, what new markets you might want to enter, and who you want to take over what areas of the company. It is best to get all this out in the open ahead of time, so you can avoid surprises later. For example, you may learn that your children do not want to continue in your business. If so, you want to know this now, so you can plan to sell the business to an outside party.
Plan for an Emergency: You never know what life may throw at you, and you never know when you or another key member of your business may die or become incapacitated. If this were to happen, it could severely disrupt operations and might even deal a fatal blow to the company. This is why you should seriously consider key member life insurance. With this type of insurance, the company will have the capital to continue operations and ensure a smooth transition in the event of a worst-case scenario.
Create a Transition Plan: Based on discussions with other family members, create a plan on how you will transfer ownership of the business to the next generation. Put buy/sell agreements in place that are a reasonable reflection of market value, and set up an estate plan that minimizes the tax burden for your heirs.
If no one in your family is interested in taking over the business, it is best to plan for a sale at least a year or so before you want to exit. A reputable business broker can assist you with this process, and help ensure you receive maximum value for the company you worked so hard to create. Look for a business intermediary who has a strong track record of success with businesses in your industry and region, and begin the sale planning process sooner rather than later.
