Business Transition: Plan Early, Communicate Often by Anita Srivastava



As the Baby Boom generation continues its march to retirement, a significant number of entrepreneurs will soon begin the process of transitioning family businesses to the next generation. If you are about to embark on this journey, here are some of the potential pitfalls to avoid.

According to the 2016 U.S. Family Business Survey conducted by PricewaterhouseCoopers, only about 43% of private businesses have done any exit planning whatsoever.1 Failure to execute a business transition may lead to multiple negative outcomes, including:

  1. Breakdown of communication and trust within the family unit.

  2. Inadequately prepared heirs and absence of a clear vision or mission to align family members.

  3. Failure by advisors to properly address taxation, governance and wealth preservation issues.

Pathways to Success

With success riding largely on a family’s ability to communicate and to clearly articulate a plan for the future, the following guidelines may help to ease the business transition process.

Start planning early

Get the process started years before the actual transition occurs. Some experts recommend building an exit/transition strategy into the initial business plan. As part of the planning process, business owners should create:

  • Supporting structures, such as a family constitution and business bylaws to familiarize all parties with the rules of governance. Fewer surprises mean fewer conflicts and discord down the road.

  • A clear vision for the business that involves all family members, whether or not they are active in running the business. Visioning is an effective method of allowing all stakeholders to share their personal goals for the business, which in turn helps create buy-in and minimize future conflicts.

Prepare the next generation

Identify the skills and leadership qualities the business may need in the future, and then prepare young family members to fulfill those roles. This will likely require sharing knowledge and providing educational opportunities.

Manage conflicting priorities

It is not uncommon for younger and older generations to have differing, and conflicting, priorities for the business.

  • Senior leaders may have concerns about whether the younger generation “has what it takes” to successfully run the business; anxiety about the next chapter of their lives (retirement, staying involved in some capacity); or worries about all children, including those not involved in the business, receiving a fair share of the family wealth.

  • Members of the younger generation may be anxious “making their mark” on the business by taking it in a new direction; investing in new technologies or processes that may improve the business but require a significant capital outlay; and micromanaging by an owner remaining involved in day-to-day operations.

It is important that families express their concerns openly, and it may help to engage a professional facilitator. When all parties feel they are being heard and respected, the sense of commitment to the business - and the transition process - is strengthened.


Anita Srivastava is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Ridgewood, NJ. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.

Sources/Disclaimer

1PricewaterhouseCoopers, Family Business Survey 2016, http://www.pwc.com/gx/en/services/family-business/family-business-survey-2016.html

If you’d like to learn more, Please contact Anita Srivastava

The author(s) and/or publication are neither employees of nor affiliated with Morgan Stanley Smith Barney LLC ("Morgan Stanley"). By providing this third party publication, we are not implying an affiliation, sponsorship, endorsement, approval, investigation, verification or monitoring by Morgan Stanley of any information contained in the publication.

The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Article by Contently Inc. and provided courtesy of Morgan Stanley Financial Advisor.

Anita Srivastava may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where [he/she] is registered or excluded or exempted from registration, [insert URL like to FA website or FINRA Broker Check http://www.morganstanleyfa.com/anita.srivastava/

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Individuals are urged to consult their personal tax or legal advisors to understand the tax and legal consequences of any actions, including any implementation of any strategies or investments described herein.

© 2016 Morgan Stanley Smith Barney LLC. Member SIPC.

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