If you’ve built and grown a family business over time, there’s a very good chance that you’d like to have your heirs take over the company at some point down the road — or maybe more like around the corner, if you’re ready to move on. But are you and your business’s potential future owners prepared for that transition and set up for success?

The fact is, we too often see entrepreneurs who want to transfer ownership of their companies to their children or grandchildren, but fail to plan adequately for that moment. As a result, family infighting can occur — which, in turn, can damage or even destroy the business that the founder spent decades nurturing. Understanding the differences in approach and thinking between founders and inheritors, it’s possible to discern opportunities and complications to improve the transition when the time comes.

If you have the desire to smartly and efficiently pass your family enterprise from one generation to the next, succession planning is essential. Many assume that succession planning is all about minimizing taxes and other financial concerns, but perhaps the biggest reason to engage in solid succession planning is because the lack of a plan can easily result in family conflicts. These conflicts can cause personal and financial complications that can result in the desolation of the family enterprise — as well as considerable damage to the family.

The key purpose of succession planning, then, is principally twofold:

• The transfer of the family enterprise between generations in the most effective way that ensures continuity.

• The minimization of family conflicts that can derail the family enterprise or damage important family relationships.

Keep in mind that there is a significant difference between putting a well-designed succession plan in place and ensuring it endures and is adhered to. While legal structures such as trusts and partnerships can guarantee the desired mechanical transfer of ownership between generations, those structures don’t negate the fact that family members can still fight over the assets.

Research shows more than two-thirds of family businesses inheritors reported experiencing family conflicts within two years after they took control. Incidentally, inheritors of single-family offices — another type of enterprise used by some extremely wealthy families — were much less likely to have to deal with family conflicts than those in family businesses. Of those business inheritors who reported having family conflicts, nearly half classified those fights as being severe. This was much more common among inheritors of family businesses than among family members who inherited single-family offices from their elders.

There are a number of ways — such as family enterprise mediation — to lessen the conflicts or at least minimize the possible harm you, your family, and your family enterprise experience. However, the foundation of your efforts to avoid disharmony should be effective succession planning. Without it, the impact of family conflicts can be intense and even ruinous.

The first consideration is deciding if you need a succession plan. To make such a decision, you and your family have to determine the preferred future of your family enterprise. With respect to a family business, some of the questions you might want to consider include:

• Does it make sense to continue as a family business, or is it smarter to sell the company now as it presently has significant value?

• Are the potential inheritors of the family business up to the task of capably managing the company, and if not, what steps are needed to ensure the continuity of the family business when it is transferred?

• What will be the arrangement between equity inheritors who work in the family business and those who have chosen not to?

If the decision is to keep the family enterprise in the hands of the family, then a succession plan is needed. A number of the research participants are thinking beyond just the subsequent generation. More than 40% say they are interested in creating a family dynasty — a cohesive economic entity where the perpetuation of family wealth, values, and objectives lasts for five or more generations.

If this outcome sounds intriguing, keep in mind: A family dynasty shares not only financial interests across generations but also the same values and goals. Because of these shared moral standards and objectives, there is a solid ongoing commitment to the family. In other words, for a family dynasty to exist, each generation must transfer to subsequent generations the family’s wealth in one form or another, as well as the family’s core belief system. Having a well-formulated succession plan is therefore essential in order to achieve both of those aims.

Obviously not every family-run business needs a plan to pass that entity on to kids, grandkids, or other family members. If you have the intention of involving heirs, or are even mulling over the possibility, then developing a succession plan makes sense. In our experience, the family businesses that survive and thrive after their founders are no longer involved are the ones that take succession planning seriously — and make it a priority.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor, Katherine Morosani, ChFC, CEPA who can be reached at 828-793-4310 or [email protected].