Snipe Hunting: Is there such a thing as successful succession planning?

July 20, 2015 by Kevin M. Alerding, Partner | Paul H. Sinclair, Partner
Snipe Hunting: Is there such a thing as successful succession planning?

The following is an excerpt from Ice Miller's Business Transition Strategies to Preserve Wealth Guide, which provides insights on a variety of topics to help ensure a smooth business transition. 

Newly minted campers are often initiated into the camping group by being sent on a “snipe” hunt. The “snipe” is that mythical creature that lurks in the woods and can only be captured by some ridiculous hunting method. When we consider the statistics of successful business succession planning, we wonder if succession planning is the business owners’ equivalent of a snipe hunt.

The odds of successfully transitioning a small, family or closely held business to the next generation of leadership are abysmally low. Despite its importance as an issue over the years, the results continue to be dreadful.

Ice Miller - Planning to transition business, family business transitionAccording to the Family Business Institute, only 30 percent of family businesses survive a transition to the second generation of leadership, and only 12 percent make it to the third generation. And the problem will only get larger. According to the Council of Smaller Enterprises, over the next 20 years, 80 million baby boomers will retire, and more than 70 percent of privately owned businesses will change hands.

Why is successful business transition practically as rare as the snipe? One key statistic tells the story: lack of planning. According to a Financial Planning Association/CNBC Business Owner Succession Planning Survey released this April, less than 30 percent of small business owners have written succession plans. It’s even worse for family businesses. According to the 2014 PwC Family Business Survey, only 16 percent of family firms have documented succession plans in place. Ben Franklin was right: “fail to plan, plan to fail.”

No doubt that business transition is difficult, but it should not be a snipe hunt. If the data are to be believed, simple planning is the solution. Simple, but not easy. Here is structure for thinking about successful succession planning.

Why Have One Plan When You Can Have Two?

While it is certainly critical to have a “business” transition plan that consists of considering the ongoing nature of the business enterprise and ongoing strategy, business owners also need a tax and estate plan. No business succession plan has any hint of success if it doesn’t deal with the brutal fact of taxation. A plan to minimize tax consequences and that also facilitates the transfer of ownership interests is critical.

To learn more, download the Business Transition Strategies to Preserve Wealth Guide or contact Paul Sinclair or Kevin Alerding

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