Family business transitions: Communication is key
WILMINGTON — It doesn’t necessarily turn out that your children have an acumen for your business, or even an interest in your business. That was just one of the realities that finance professionals shared with an audience of 50 at the Family Business Transitions, Strategies & Tactics event at the University & Whist Club on Wednesday.
For families grappling with the process of handing over the family business to their children or a family members, letting go of the reigns is complicated.
“You had to have a strong personality to start that business, and it’s your baby,” said John Goodwin, a financial advisor at Creative Financial Group. “Letting go is really hard, and there’s the question of ‘What do I do now?'”
The statistics dictate thorough planning, according to Goodwin. Roughly 70 percent of businesses won’t survive into the second generation, 88 percent won’t survive into the third and 97 percent won’t make it to the fourth generation.
Goodwin told attendees that good planning involves looking at the current owner’s exit and estate plans; then the “next in line’s” plan, followed by a business plan that includes strategic goals under the new leadership.
“Fair does not = equal,” warned Goodwin, who said that many owners worry about keeping peace at the Thanksgiving table when it comes to deciding just who and how critical business decisions are divided among children — some of who whom have an interest in the family business, and others who don’t.
According CPA Barry Crozier with Belfint Lyons Shuman, communication is paramount when you’re dealing with a small business and family
Crozier warned that written plans should be shared with the entire family, and balancing the wealth within the family means looking at family dynamics and assets of the seller, among other things. He also urged families to consider tax costs and insurance when considering strategy.
“You have to have a plan to value your business,” said Crozier, who added that insurance can be used to cover the shortfall if the buyer doesn’t outlive the term of the purchase, or to equalize the estate among beneficiaries.
Delaware Brick President Peggy Hinton, a third generation business owner, shared her family’s story with the audience. After two significant family business transitions at the growing company, she said the process is unpredictable.
“It takes time to understand what each side wants and expects,” said Hinton.
The program was part three in the Family Business Development Series presented by the Delaware Small Business Development Center and Delaware Business Times.