Big Picture - October 2016 - 16

business + management Succession Planning for Your Business When it comes time for retirement, should you sell your company or pass it along to your family? | by Marty McGhie BIG PICTURE October 2016 A well-known business from our area experi- enced significant growth and a high level of prosperity for many years. The founder had a number of children involved. Then came time for his retirement. He left the business to be divided up between his kids, and a short time later, passed away. Since then, the business has been a disaster. Due to the lack of a specific succession plan, the children have fought over control, leadership, daily management, etc. Today, they're on the verge of collapse and are no longer experiencing the success their father built over so many years. This is just one of thousands of similar stories of next-generation business failure. Most of these sad accounts are due to the lack of a good succession plan. In fact, the Harvard Business Review states that 70 percent of nextgeneration family-owned businesses either fail or are sold before the next generation gets the chance for success. In spite of its importance, succession planning is a topic that you as a business owner may not wish to think or talk about, but avoiding this subject could very well be the cause of your business failing in the future. When it comes to succession planning, you have three options to contemplate. You can choose to liquidate by selling your assets, paying off your liabilities, shutting down, and collecting any excess cash after the company is dissolved. You can sell to an outside party. Or, you can pass your business down to your family members. The first option is not typically a viable one because there's almost always value in keeping the business operating in some fashion. So, let's focus on the other two options: Do you sell your business or pass it along to your family? A FAMILY AFFAIR The primary advantage of passing your business on to your relatives is the opportunity to keep it in the family, where it will hopefully continue to be managed profitably, with an obvious end goal of continued success for you and your family. While statistics indicate that the odds are against next-generation success, there are many examples of the next generation taking a business to a much higher level than their predecessors did. To that end, the first question you must ask yourself is whether or not you have a son, daughter, or another relative who is qualified and motivated to continue managing your business for the next two or three decades in a manner that will create long-term success. And frankly, while that is an extremely difficult and objective question to ask yourself, you're the best person to know the answer. One common reason why next-generation businesses fail is because you have probably built your company from a rather small shop with a handful of employees into a much larger and more complex organization. Like all of us, you undoubtedly made many mistakes along the way, but those may have had a relatively small impact in the early stages and were perhaps much simpler to resolve. Now, you may be MARTY MCGHIE is VP finance/operations of Ferrari Color, a digitalimaging center in Salt Lake City, San Francisco, and Sacramento. He is a partner and director of Signs.com. marty@ferraricolor.com 16 http://www.Signs.com

Table of Contents for the Digital Edition of Big Picture - October 2016