Should you keep your business in the family?
Why is it that succession in family businesses can be such a difficult issue?
Why is it that such a low percentage of successful family businesses survive past the first generation and an even lower percentage survive past the second generation?
Is it as simple as mum and dad not letting go, or that the next generation has a real sense of entitlement?
In my years of dealing with the complexities of families and their businesses there seem to be several hurdles that often present as barriers. Like all barriers in life, it is a matter of identifying the real issues and then addressing them in a meaningful and constructive way.
Most successful family businesses begin with mum and/or dad working really hard for many years to build and establish a successful business. That business provides for the family, often quite comfortably, and by the time the next generation reaches adulthood, it has genuine value. The second generation then sees the business as an attractive career option.
At this point, there can be several barriers from both the parent’s perspective and also for their children (and their partners/spouse), that often aren’t spoken about openly.
The parents may not have considered the notion of retirement and may not be ready to hand over the business. Preparing for retirement and handing over control of the business are both significant issues and need to be addressed independently of each other.
Dad, for example, may have his whole identity tied up in that business. The parents may be concerned about the capability of some members of the next generation. They may be concerned about providing for an equitable distribution of wealth amongst their children. They may also be concerned about protecting the assets that they have worked so hard to build.
The next generation also has its share of fears and concerns…
- Am I prepared to commit to this business for the next ten years and longer, and possibly for all my working life?
- What are my expectations and are those expectations aligned with those of my parents?
- I am aware that my parents want to treat all their children equitably, and they need to retire, therefore how do I fund the purchased of this business from my parents?
- Are their difficult and complex family relationships that need to be navigated?
- Do I have the necessary business acumen to make this business an ongoing success?
- I don’t want to be the one to blow the family fortune. Do I have the skills and commitment to carry this business forward for the next generation that follows me?
These are all very valid questions and concerns, and this is by no means an exhaustive list. They all need to be addressed sensitively and respectively.
Because we are dealing with families and sometimes difficult relationships, it’s of great benefit to all stakeholders to involve an expert business adviser to guide the family through the process. If handled badly both the business and family relationships can be destroyed beyond repair.
Family succession is usually a journey rather than an event. Ensure you’re on the right path.