The old saying that if you fail to plan, you are planning to fail certainly applies to transferring family-owned businesses from one generation to the next. Studies show that 60 to 70 percent of all family-owned businesses have no succession plan in place. It is likely no coincidence that the percentage of family-owned businesses that don't survive the transition from founder to the second generation is also 70 percent. The most common causes of these business failures are taxes and family disputes, both of which can be minimized with early and thorough succession planning.

Emotions can run high when it comes to choosing who will take active control of the family business and alternately, who will be compensated and in what amount. However, avoiding these critical decisions and not accepting the inevitability of a business transfer is almost certainly a recipe for failure.

Transferring assets to the next generation is much simpler than transferring a business. It is necessary to consider your family members wisely and make decisions about who, in actuality, would best run the business based on their skills rather than just the familiarity of your relationship. To do otherwise is to put the business at serious risk. It is feasible to transfer ownership equally but it is usually impossible to equally transfer management.

‘The earlier the better' is a solid piece of advice when it comes to planning for succession. Financial planners often suggest that their clients build an exit strategy into their initial business plan. Planning early not only ensures that you make the most levelheaded decisions, but also allows those who will take over, opportunity to ease into their new role.

To avoid emotional surprises to family members, it is suggested that you involve them in the succession planning discussions. The legal and tax issues associated with succession planning can be complex, so lawyers, accountants and financial advisors should be consulted both to ensure it is conducted correctly and also to explore the most cost effective solutions. Lawyers in this specialty can advise you on effective tax strategies, specialty partnership options, such as family limited partnerships, and the development of buy-sell agreements so that your successors receive the maximum value upon transfer. All aspects of the transfer plan should be documented to ensure clear expectations and serve as a basis for resolving future differences.

A final recommendation is to remain flexible and keep an open mind both before and after the transfer. It may be possible that the talents of family members might actually help evolve the company into exciting new enterprises.

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