Did you know that 70% of family-owned businesses don’t make it to a second generation? What about the fact that 90% of these businesses never make it to third generation? Those are pretty scary statistics. Granted, many of these businesses were not created to provide a legacy from generation to generation, but what about those that were? What happened to them? Many times there is a difference of opinion between parent and child on how to run the business, other times there is a lack of interest from the children in getting involved and other times the business is just not sustainable. If you are the owner of a family-owned business and you want to know how you can avoid being in the statistics above, here are three things you can do to buck the trend:
- Have the succession planning discussion with your kids early and often
- Align your personal objectives with the objectives of the company
- Determine roles and responsibilities and develop a transition plan
By taking these three steps, you will be ready to hand off the business successfully to the next generation, or at least know that they are not interested so another strategy can be developed. Have the succession planning discussion with your kids early and often Too many small business owners just assume that their children have the desire (and the capability) to take over the business and run it successfully. This is not always the case. Get your family involved in the business early, summer jobs, internships, projects, etc. to give them insight into the business. Let them decide if it is right for them. If they show interest, have discussions about how they would manage the business, changes they would suggest how the transition might work. Help them visualize what their life would be like if they were running the business and ensure that you are comfortable handing over the reins. The biggest mistake business owners make is bringing in younger family members to run the business, but not getting out of the way to let them do it. If it turns out that your children are not interested in taking over the business, you know early and can develop an alternate exit strategy. Align your personal objectives with those of the company If your children show interest in taking over the company, and you are comfortable with that, then the family’s personal objectives need to be aligned with those of the company. Is the job for the next generation to grow the company? To reduce the cost structure? To provide enough income for the parents? Maintain a retirement nest egg? All of the above? This is an important step in determining how the business will be run. The next generation will come in with new ideas, but those ideas need to be executed in order to help meet the company objectives. Those objectives need to be agreed upon by all family members involved in the succession planning of the company because those objectives need to be consistent. Without consistent objectives, the business will have no direction and each family member will have a different perspective on what needs to be achieved. Determine roles and responsibilities and develop a transition plan Once you have decided that your children will be taking over the company, you need to develop a transition plan identifying roles, responsibilities and timelines. When will the transfer of power take place? What needs to be completed before that can happen? How long should the transition take? These are all important factors to consider. You need to know if your child should work in the business for a year to get to know customers, employees and suppliers before just taking over as President. You need to avoid creating two camps within the company between those supporting the old guard and those supporting the new guard. There needs to be a clear, public, transfer of power so that there is no misconception as to who is in charge. The change needs to be supported at all levels of the organization so as not to impact company performance. Handing over control of your business will be one of the more difficult things you will ever do. You have likely spent most of your life growing this business and putting your blood, sweat and tears into it and now someone else will be running it. However, you should be proud that it will be staying in the family and by following the advice above, you know that you will be leaving the business in good hands and going in a direction that is consistent with your vision.