According to the Small Business Administration, approximately 90% of all businesses are closely held and family owned. However, of those, only 30% succeed into the next generation, and a mere 15% survive into a third generation. Why do 70% of family businesses fail to succeed into the next generation? The primary reason is that family business owners neglect to create a comprehensive succession plan or “exit-strategy” for themselves.

When business owners work hard over many years to create a business that generates wealth for them and their families, more often than not, the business is the owner’s most valuable asset. More importantly, however, the owner is also the business’ most important asset. That is, the value of a small business very often lies within the owner’s experience, contacts and specialized skills.

These facts raise several questions. First, what happens to the value of the business when the owner or other key employees are no longer there? Second, when the owner is ready to exit the business, how does he or she extract from the business the value and wealth he or she has created? The answer is a business succession plan.

The objective of a business succession plan is to successfully transition the business from existing owners to new owners, and to protect and/or extract the business’ wealth created by the departing owners. When the current owners are no longer working for the business, either due to retirement, death or disability, a carefully prepared business succession plan, based on the needs and goals of the business owner, ensures continuity for business operations and continued financial security for the departing owners and their families.

For some businesses, the successor owner will be the owner’s business partner, the owner’s children, or perhaps a group of key employees. For others, it will be a third party. In all of these situations, though, the most effective kind of business succession plan is generally one that is integrated into a client’s estate plan, because succession planning invariably touches upon estate, tax, real estate and retirement planning.

If you want to protect the success of your business and provide for your family’s financial well being in the future, then a well thought out and executed business succession plan is imperative. If you have questions about succession planning, please contact Arlene Kasarjian.