November 14, 2016 | last updated November 14, 2016 7:59 am
How To

How To: Develop a succession plan for a family business

Michael R. Walp

Consider this: Some 35% of Fortune 500 companies are family controlled, according to Conway Center for Family Business. Family businesses account for 64% of U.S. gross domestic product and generate 62% of the country's employment. They account for 78% of all new job creation.

But within the next 30 years, nearly all family-owned businesses will lose their primary owner to death or retirement and approximately $10.4 trillion of net worth will be transferred. Further, nearly one-third of family owned businesses do not have a succession plan. This is not only potentially troublesome for the economy, but it is also bad for family-owned businesses.

The importance of a succession plan

One third of family-owned businesses have a succession plan and 30% of family-owned businesses survive the transfer to the second generation. The correlation between planning and surviving could not be more direct.

What makes succession planning difficult for family-owned businesses is the family itself. For starters, the subject can be difficult to broach. Family variables, such as who will step into the leadership role, make such transitions more unique. The plan will need to take into account estate taxes and related taxes and fees.

Start planning early and consider these four factors:

  • Inclusion: If you want to keep the company in the family, involve the next generation in its operations as early as possible — even if they are children. You want them to feel a sense of ownership and have an understanding of the company's values, culture and position within the market.

  • Development: Identify potential leaders and create a personal and professional development plan that they are held accountable for fulfilling. This will help position them to be successful once they step into their leadership roles

  • Vision: Formulate and communicate a short-, medium- and long-term plan for the company. Seek input from others. This will ensure that there are common goals and defined strategies for achieving them — with or without current leadership

  • Execution: Successful transitions involve plans that are clear, well defined, fair and transparent. Understand that some family members may not be satisfied with the outcome, but good communication can strengthen continuity and prevent conflicts.

Remember, each family is unique and each has its own history that shapes the company and its culture. Developing a focused plan is the best way to overcome these challenges.

The financial side of the succession plan

In simplest terms, succession planning is really about transferring ownership and control of a business to a new party. The better positioned the company is for success and the more attractive it is to buyers, the more value the company will have.

Even if the plan is to keep the company in the family, financial needs and financial planning remain paramount. There are a number of strategies to transfer ownership of family-owned businesses to the next generation, including gifting, different types of sales and estate freezing.

In each of the above categories, there are a number of other solutions. And just as your family and business are unique, the arrangement for transitioning your business to the next generation of family ownership should also be unique. To ensure these unique needs are met, build a strong professional advisory team consisting of an attorney, an accounting firm and a bank. This team can provide you with the guidance your business needs to thrive in your absence, as well as ensure your financial needs are met for the remainder of your lifetime.

Michael R. Walp, a senior vice president and market sales leader at Key Private Bank in Maine, can be reached at


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