A good estate plan may prevent the family business from failing after the first generation passes away.
Family business owners face a challenge when it comes to the continued operation of the business when they attempt to pass the ownership and operation of the business to the next generation because 70% of businesses fail in the second generation.
There are a great number of cases where the family does want to keep running the business, but is unable to do so.
When that happens it is often the result of inadequate planning as Bloomberg points out in "Keeping It in the Family."
A key problem is that succession planning for a family owned business is more difficult than it is for other businesses as there are more stakeholders involved. If the business represents a large portion of an estate, the founder must also plan for how relatives not involved in the business will receive an equitable inheritance.
One of the common mistakes people make is to give ownership control to family members who are not going to be involved in the actual running of the business. That creates tension and fighting with family members who are running the business.
Just because succession planning is more difficult for family owned businesses does not mean that it is impossible. With proper succession and estate planning the business can thrive long after the founder has passed away. For that to happen it is important to not delay the planning, but instead to start as soon as possible.
An estate planning attorney can give you guidance to increases your chances of success when passing ownership from one generation to the next.
Reference: Bloomberg (April 21, 2016) "Keeping It in the Family."