The central issue facing every family business, understandably, is succession. The business has been built up, is producing a profit, and you have some family members making a living at the business. But the time is approaching where you realize that you cannot go on forever. What is a family business owner to do?
When thinking of succession, there are essentially four goals in mind:
When looking at a family business, it needs to be understood that there are multiple overlapping factors in play: there is the family, the business, and the ownership. The family business founder or owner is at the epicenter of this family business system, in which a change such as a divorce or death can impact multiple other areas.
Ultimately, every family business owner is faced with some very basic options when thinking about succession: I can sell the business for the highest dollar value I can find; I can pass the business on to the next generation; or I can install non-family management to run the business.
The dream in many cases is to have the next generation manage the business. However, this is not so easy. William R. Thomas, professor emeritus at the University of South Carolina’s Moore School of Business, puts it this way: “I have seen many family businesses in my day, and as I used to tell my classes, the first generation builds it, the second uses it, and the third loses it.”
Interestingly, the professor’s perception is shared across the globe that family businesses fail in three generations. However, research has shown that about 65 percent of all family businesses fail from any generation to the next. Still not good odds.
Here are some tips to help you address your family business succession to increase those odds: