Who Says the Family Business Won’t Make it to the Next Generation?

Who Says the Family Business Won’t Make it to the Next Generation?

Family Business Succession: Managing the All Important Family Component

So what is going wrong with family businesses and the succession process?

They say that 70% will not make it to the 2nd generation and an alarming 90% won’t make it to the 3rd.  Surely, the owners of family businesses cannot be held solely responsible for these dismal succession statistics. The good news is that we now know what is going wrong and how to fix it.

Far too much attention continues to be paid to the technical component of the family business succession process (tax minimization, estate freezes, family trusts, buy-sell agreements, wealth maximization, etc.) with far too little attention being paid to the people or non-technical component (family communication, family expectations, family values, family competencies, family dynamics, etc.) of the succession process.

Family business succession is different and much more difficult than succession for non-family enterprises. The impact that the family dynamics can have on the succession process should not be underestimated. In some cases, the family dynamics is the defining element of whether or not the transition is successful. Family businesses that acknowledge the impact of the family component on the succession process and who are willing to allocate time, effort and resources to effectively manage the all important family component are far more likely to experience a successful transition.

Intergenerational ConflictsFamily business owners, unlike their non-family business counterparts have to work through the succession process while playing several different and at times conflicting roles. On the one hand, they must play the role of business owner and boss determining what is best for the business which may not be what some family members want, while on the other hand, they must also play the role of parent, friend and coach to their children providing them with unconditional love, support, protection and career and live opportunities which often comes into conflict with what is best for the business. Trying to balance the needs of the business and the needs of the family is no easy task and far too often is a major contributing factor to why these parents delay or simply do not engage in the succession process.

Many family business owners believe that their internal (family) issues are unique to them and cannot envision other family businesses experiencing similar challenges. In reality, most family businesses experience the same issues but within a different set of circumstances. In other words, the issues are fairly common among family businesses but the timing of when they will surface will vary from one family business to another with the majority of the family issues presenting themselves during the succession process.

Therefore, family businesses who wish to avoid/beat those dismal succession statistics need to acknowledge the unique succession challenges they face and acknowledge the need to engage the services of a family business advisor to assist them in effectively managing their all important family component as a prerequisite to undertaking the more technical component of the succession process.

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