We have recently talked about the benefits of succession planning and how, when properly implemented, it can help to grow business value. There can be succession planning challenges in family businesses, however, especially when the assumptions that the various family members make do not match necessary skill sets or individuals’ wants or needs. Here we will discuss some of these challenges.
The harsh reality is that only a minority – about 30% – of family-owned businesses will survive to the second generation. Far less survive to the third or fourth generation. Despite these odds, fewer than half of family business owners do not have a succession plan in place.
It’s not a requirement that owners sell or pass on their companies to their children or other family members, but it will be very helpful for everyone involved if they decided what they would like to do with their companies in advance. In some cases, it’s best not to pass it on to the next generation, in fact.
When Your Children and Your Business Are Not a Good Fit
In what circumstances should you not transition your business to your children or other family members? There are many. Let’s list some of the biggest red flags:
- Your children do not want it
- Your children do not get along
- Your children do not have the skills or the aptitude for the position
- Other people are better suited to company leadership
Succession Planning Challenges
If your children truly do not want to take ownership of your business, anything you do or say will likely not change this. Sometimes what makes us excited and happy leaves other people feeling bored…or resentful.
Running a business is a tough job. At the very least, you have to be motivated to make it a success. In many cases children will not be honest with their parents about how they feel about the family business because they don’t want to hurt their feelings or disappoint them. When you begin your succession planning process, you need to communicate honestly and openly with your children about what they want as well as what you want. If you are not in agreement and your kids are not committed to the business’s success, the company’s future is not bright.
If sibling rivalry is a problem in your family, this can also be a huge barrier to a good transition of ownership. This is especially true if you are the one who successfully mediates conflict within the family. Just because children are raised in the same environment does not mean that they will have the same values, risk tolerance, management style, or personal goals.
Families are complicated, and money makes things possible, but it also can create jealousy, control issues, rivalry, and long lasting bitterness. If your children cannot work together for the good of the business, you should not transition ownership to them, no matter how much it means to you to see them take charge. The business will not survive, but, more importantly, family relationships might not either.
It’s very hard for a business owner to realize that the child they wanted to see take the helm of the company they built does not have the skills or temperament for it. No one wants to fire their kids, but this is sometimes necessary to protect the business and its employees. If your children can’t handle business ownership, you’re not helping them by selling it to them – or even giving it to them outright. And you will be actively harming anyone else attached to the company and likely your own retirement as well. Part of succession planning is “success.” Transition leadership of your company to whoever can make that happen.
Plan for the Future
If you do believe your children can handle the responsibilities of running the family business, start planning now so they will be prepared to take over when the time comes. Involve them in management early and make sure they have the training, education, and mentoring they need to make the full spectrum of necessary decisions when it’s their turn to lead.
Succession planning challenges can be overcome with enough time, planning, and communication. The earlier you identify issues and problems, the better the outcome is in terms of both business success and family happiness. If you would like help making your business succession plan, please contact us at Prometis Partners. We want to help make your goals for your business’s future a reality.
