According to The Practical Lawyer, 90% of all businesses in the United States are family businesses. These are businesses owned or manage by members of the same family. Family owned businesses are very important to the US economy, creating 60% of total US employment, 78% of all new jobs, and 75% of wages paid. Over the next 4-5 years, 40% of these family businesses will be handing off the reigns of control to the succeeding generation. On the other hand, it is predicted that only 12% of businesses that pass to the second generation will survive to the third generation.
Yet, maybe more ignored by business owners are issues entirely unrelated to estate taxes. First, dysfunctional family power dynamics and sibling rivalry can restrain preparation of the succeeding generation for management. Second, even if there no overt conflict exists, elder generations may not wish to let go of management because of the fear of loosing their leadership role in the family. Third, important age differences between parent managers and their children (frequently 20 to 35 years) can lead to a disconnect between managers and protégés, reflected by divergent expectations on how the business should grow in the future.
To address these concerns, family business owners must consider the following four strategies. First, have an ownership system set up that can help alleviate the tax bill. The structure of the family business, like corporation, partnership, or an LLC, can guarantee that the business will be kept in the family.
Second, take concrete steps to organize the succeeding generation for management. Make sure that there are regular family meetings where the small and long term goals of the business are discussed. A family meeting serves as a forum where the older generation can communicate the values upon which the business was built, and where protégés may express where they see the business going and their willingness to handle. The family meeting gives an opportunity to classify which protégé can be groomed as an heir. Furthermore, it can serve as a launching point for the delegation of management responsibilities. A third party objective participant in the family meeting, such as a family business attorney, can help recognize an appropriate heir to groom.
Lastly, write up a family business mission statement. This document will articulate the values and direction of the family business both now and for next generations. Not only does such a statement notify future managers of the goals and direction of the business, it also serves as a lasting testament for the future generations of family business owners.