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family business transitions

Five ways to keep a family business in the family

Arne Boudewyn, managing director of Family Governance and Education Services at Abbot Downing, shares ways to build and maintain a successful family business spanning multiple generations.

June 14, 2017
Arne Boudewyn
Arne Boudewyn

Arne Boudewyn is the managing director of Family Governance and Education at Abbot Downing, Wells Fargo’s business serving ultra-high-net-worth clients.

Building and maintaining a successful family business over multiple generations can be challenging. As families expand and businesses grow, it can become complicated to ensure everyone has a role that benefits the business and is personally fulfilling.

The aging demographics of family business owners add another challenge — ownership transitions. In fact, a 2013 PricewaterhouseCoopers Family Business Survey suggests that 51 percent of current family-owned businesses will transition the ownership of their business by 2025.

And the stakes are high. About 70 percent of family businesses are sold or do not survive beyond the founder’s generation, and only 3 percent survive into the fourth generation, according to the Family Business Alliance.

Five steps for sustainability

While complications may arise, there are five steps families can take to enhance the likelihood of long-term business sustainability.

    1. Plan early. Consider building an exit strategy into the business plan. Knowing how the transition will occur when the time comes will lessen the chance of unpleasant surprises.

    2. Teach the next generation. Have a comprehensive education plan to help next-generation family members become responsible, educated, and competent about business and finance.

    3. Communicate openly. Schedule regular meetings with family members, including potential successors, to review business plans and financial reports, and to discuss family business.

    4. Work with an advisor. Select advisors who have worked with family-owned businesses before and are experienced in succession planning, family business transitions, and navigating family dynamics.

    5. Anticipate potential conflicts. Review your written business plan regularly with your transition team to update information and to flag potential conflict areas and risks. Passing on a family business is an emotionally charged decision that can potentially cause family conflict. For example, an owner may want to pass the business to the next generation, but there may not be an interested or suitable individual who can manage it successfully, or the situation or timing might not be right.

A legacy for generations to come

The key to a successful transition is involving all your banking partners in the conversations early. Whether it’s a company sale or a true generational transition, experienced banking partners can help ensure all the right steps are followed to minimize tax implications, set up family or philanthropic trusts, and more.

We work closely with our Middle Market Banking group, whose nationwide teams support many companies through transitions, because a majority of their customers are family-owned businesses.

As Melissa Landay of our Middle Market Banking group in Philadelphia points out, there are a host of factors involved in determining the best time to transition a business. (Learn how Wells Fargo is helping one of the country’s leading metals manufacturers keep its business “in the family” through guidance on succession planning.)

“Timing may be a consideration where headwinds in the industry could potentially impact the value of the business,” Landay said. “There are also cases in which there is not an obvious heir apparent to take over the family business and continue a successful legacy. In instances of illness or a death in the family, a transition may need to happen sooner than intended. And of course, families often seek to diversify their wealth, or the business may need capital to grow, and the owners simply may not be comfortable taking on the debt required for that growth.”

Early planning, a shared vision, clear communication, and a formal succession plan are all key elements of passing a business on to the next generation. Successfully executing the plan is the best way to create a legacy for both your family and your family business for generations to come.


Disclosures

Abbot Downing, a Wells Fargo business, provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo, N.A., is a bank affiliate of Wells Fargo & Company. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.

This information is provided for education and illustration purposes only. The information and opinions in this report were prepared by Abbot Downing. Information and opinions have been obtained or derived from information we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Abbot Downing’s opinion as of the date of this report and are for general information purposes only. Abbot Downing does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

Wells Fargo and Company and its affiliates do not provide legal advice. Please consult your legal and tax advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depend on the specific facts of your own situation at the time your taxes are prepared ©2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC

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