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In line to take over the family business? Start readying now

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The odds are pretty staggering – only 30 percent of family owned businesses succeed in transitioning their business to the second generation.

For those transitioning to a third generation, the odds are even worse – only 10 percent succeed.

There’s a way to beat the odds – prepare.

The best business-transition plans occur over many years, both to allow the next generation to learn the family business and move up the leadership ranks and also to best financially prepare the business.

How the business is transitioned will affect the livelihood of the existing and future owner, as well as the success of the business as a whole.

Leadership training and developing financial skills are the top two skills you need to succeed in taking over the family business.

FINANCIAL SKILLS

A rising family business owner needs two types of financial training to be successful – skills that will help in the transition and sale of the business and skills needed to run the financial part of the business.

< Financial skills for business transition

Buying your parents’ business may seem daunting unless you’re particularly cash flush.

The good news is that transferring ownership of a business over time provides a lot more options. Also, selling or gifting an entire business in too short of a time frame can result in unnecessary tax implications.

A good first step is obtaining a high-quality valuation by a certified valuation analyst and then working with a Certified Public Accountant on the most tax-advantageous options for your situation.

< Financial skills as the new owner

Financial responsibilities are among the most crucial to the strategic success of your company.

Will you make your budget? How will you find new revenue opportunities to expand your company? What are your most profitable products or services? How do you manage cash flow cycles? How do you time strategic purchases?

Whether you’ll have a daily role in the finances once you take over as CEO or whether there’s a chief financial officer, controller or entire financial team to handle those duties, there’s high value in having business financial knowledge. These skills include how to understand financial statements and weighing tax-planning strategies.

LEADERSHIP SKILLS

Leadership can be demonstrated in many ways, and no two leaders are alike, nor will they drive the same results. As often seen in professional sports, a new coach can often have vastly different results with the same team.

There are great benefits to taking an in-depth personality test such as a Myers–Briggs Type Indicator or a DISC assessment. In addition to discovering your personality and leadership traits, these tests can tell you how you best work with others.

A major part of managing a business is managing its people, and the better you are at that, the more successful your company will be.

TRANSITION TALKS WITH FAMILY

Well before working with your new executive team and employees, you’ll have to learn how to successfully navigate a possibly more challenging relationship – the one with your family.

Think about it, the business is connected to your parents’ reputation. They’ve invested decades’ worth of time and money into it.

And now its sale – and future success – will be the major funding sources of their retirement.

They are hefty conversations to have.

EXPERIENCE IN THE COMPANY

The most successful family businesses don’t give out CEO titles based on last name alone – they make their successors earn them.

Your position in the company should match your skill set. If you’re a recent college graduate, there is likely value in starting in an entry-level position. If you’ve already worked in the family business for several years, moving up the ranks – especially serving in a chief operating officer or other second-in-command position – is the best on-the-job training.

Some incoming family business owners find a lot of value in pursuing leadership training or even higher degrees, such as a Master of Business Administration.

It also can be valuable to connect with other rising family business owners, possibly through your local Chamber of Commerce or other business networking organizations.

< Concannon Miller’s Next Gen Academy for Finance and Leadership for Private Businesses is another training option for upcoming business owners. During the six-session academy, participants will develop the leadership and finance skills critical to their business’ ongoing success, as well as develop a network of peers in the business community. Speakers include family business consultants Compass Point Consulting. For more information, visit nextgen-lv.eventbrite.com.

Andrea L. Brady, Certified Public Accountant, and Tony Deutsch, are shareholders at Concannon Miller, a CPA and business consulting firm in Hanover Township, Northampton County. They can be reached at abrady@concannonmiller.com and tdeutsch@concannonmiller.com.

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