Business Succession

Along with life insurance and real estate, the largest asset most people own is a family business. However, recent studies indicate that nearly 30% of businesses fail to pass from first generation to the second generation. Even more alarming is that the same study found that only 3% of all family owned businesses survive beyond three generations. This dramatic failure rate is attributable to a number of factors, but the majority of those factors all can be traced back to a failure to plan. Often, the first generation presumes the second generation wants to participate in the family business, but find out all too late that the second generation is disinterested. Even when the second and third generations take control, they rely on the fact that the business “survived this long,” and fail to make their own succession plans for the business. Just as personal estate planning has a variety of tools, business succession planning does, as well. One of the most important tool is the buy-sell agreement. A buy-sell agreement allows for the clear, concise transfer of the business interest from a known and willing seller to a known and willing buyer well before the events that trigger the sale are expected to occur. This proactive planning allows the seller and the buyer to examine their resources (financial resources, labor resources, intellectual resources, etc.) to make informed decisions regarding the transfer of the business.