Family Business Succession Planning

While family-owned businesses have many of the same advantages and challenges of any small business, family-owned businesses have additional advantages and challenges. According to the SBA, only 30 percent of family-owned businesses survive past the second generation and only 13 percent to the third generation. Given these facts, dealing with succession of the company’s leadership is of vital importance to the welfare of the business and its employees.

Succession Issues 
The topic of succession is one of the thorniest issues within a family-owned business. Below are some of the things to be concerned about:

• The children may not want to run the business or even be a part of it.
• Heir has been selected based on age or some other non-business reason.
• Heir has not been adequately trained or prepared to run the business.
• Children do not agree on founder’s choice of sibling heir.
• Children decide to leave business due to heir selection.
• Internal business squabbles negatively impact personal relationships of the family.
• Non-family members will not be selected, though they might be the most knowledgeable and qualified choice.
• Highly qualified and needed executive human resources may not take jobs with family-owned businesses, knowing they will never be allowed to own or run part of the company.

Needless to say, this incredibly important issue is rife with potential landmines.

Characteristics of Successful Family-Owned Businesses
While owning a business can be very rewarding, it can also strain family relationships.  In addition, a transition of the business from its original founders to the next generation of leadership can be complicated and the potential for serious problems or even business failure are high. The following are some tips that will help make owning your business more enjoyable and the transition to new leadership much more likely to be successful:

• While it’s important to work hard, especially in the first couple of years, remember to balance your business life with your family life. If I have learned anything, it is that nothing is more important than your family. As the saying goes “No success can compensate for failure in the home.”
• As there is a highly probability the children will not want to take over the business, don’t start a business for the sake of the children. Do it because you want this for yourself.
• Don’t force the children to be part of the business if they don’t want to.
• Choose the best people for the business regardless of whether or not they are family members. Similarly, choose the best person to succeed you in running the company. The family business will not benefit anyone if an unqualified family member runs the company into the ground.
• If some of the children are interested in being part of the business, prepare them with increasing responsibilities and training.

This last point is one of the most important and common characteristics of successful family-owned businesses. In many cases of successful family-owned businesses, family members are not allowed to be in the business until they have worked and trained elsewhere for a number of years. This way, the family members bring more to the business than just common DNA. They bring experience, expertise, and insights as to how things are done (successfully and unsuccessfully) at other companies.

Given that no one knows it all, and the consequences of getting it wrong can be devastating, one shouldn’t try to figure this out alone. Please feel free to contact us. We will help you gain Clarity so you make the best family-business succession and leadership development decisions.