As most readers of this publication know, one of the most remarkable family-business success stories-the nation's premier maker of pasta sauces-was born in Rochester.
LiDestri Foods is a tale of two families. Founded in 1975, Cantisano Foods grew significantly over the decades. Ralph Cantisano retired and sold the business in 2002 to his long-time protege, Giovanni LiDestri, and the LiDestri family continues sole ownership of the company today. With locations throughout the country and a product line ranging from pasta sauces and dips to salsas and beverages, the two families built a high-quality company that feeds millions every day.
Startups and do-it-yourself enterprises make up more than 80 percent of U.S. companies. Most of their owners dream of building a family success story, just like the LiDestri family. But not many of those dreams come true. According to the Family Business Institute, only 30 percent of businesses survive into a second generation of family leadership.
If success in starting a business is 10 percent inspiration and 90 percent perspiration, a successful transition to the next generation is 100 percent preparation. Even while you are working hard to build the business, you need to develop a solid succession plan.
The first step is deciding what role your business will play in your own retirement and estate plans. Options to consider include selling the business outright or selling a portion and drawing income from your remaining interest.
If your business is a partnership, succession planning can be more complicated. To help defuse any issues, include succession options in a partnership agreement, including planning for contingencies or when only one partner wants to sell.
Few business owners simply want to cash out for personal gain. More often, they want to turn the business into a family legacy that benefits their children and generations to come.
Making that happen is complicated from a personal perspective, along with a legal and financial one. It's essential for family members to have honest discussions about difficult topics: Do any of your children want to follow in your footsteps as a business owner? Do you have more than one child who wants to run it? If the answer to either question is "yes," you need to make candid assessments about whether family members have the skill and drive to run your business successfully.
Creating an outside board is a critical step to facilitating these discussions and assessments. Outside advisers provide a dispassionate sounding board to help figure out the "who" of succession planning-the roles different family members might play in continuing the enterprise.
Once your family has determined that, the question becomes "how." A wide range of tools is available. Here are three of the most common.
- Revocable trusts allow the owner to pass the business to designated heirs through a trustee, instead of through probate court, which helps to let the business continue operating smoothly after the owner dies.
- A family limited partnership brings in family members as partners and gives them management responsibilities while the owner is still active in the business. This can provide tax advantages as well as a smooth transition.
- Limited liability companies-which combine some features of partnerships and corporations-can involve family members in the company while also providing tax advantages and protecting personal assets from company liabilities.
Elements of all of these tools can be used in combination with each other, and there are further options to consider. After working with your board to determine what you want to accomplish, find trusted financial and legal advisers to help you make it happen. Every business owner needs a custom succession plan that fits the needs of his or her organization and family.
While few businesses grow as large as LiDestri Foods, businesses of any size can be successfully passed on to the next generation. The key is not leaving the future of the business for your heirs to figure out. Recognize that preparation is as essential as perspiration to long-term success, and develop a succession plan well before it's needed.
Daniel Burns is Rochester regional president for M&T Bank.9/21/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email firstname.lastname@example.org.