Why Do So Many Family Businesses FAIL to be Transitioned to Others?

According to Forbes, only one third of all family businesses in the US make the transition to the second generation…that’s appalling…and sad. To be honest, this number makes me cringe every time I see it. Because it doesn’t have to be so low…it should be closer to two thirds in my opinion.

There’s ONE primary reason this number is so low.

PLANNING…or should I say a lack of planning. Without question, this is the number one “generation transition killer” from my experience. I talk to hundreds of business owners…small and large…and they all fail to do the proper planning. Or maybe I should say the proper “timely planning.”

The key is TIMELY PLANNING

Timely planning means you create your plans well ahead of the event (transition). The most common issue with regard to planning is that it is done in too short of a time frame that doesn’t allow the right things to happen at the right time.

Take for instance, a business owner I know wanted to give it to his son and his son wanted to run the business. It was a great dream that both sides were excited about and thinking about for a long time. But they never did any actual planning to make it happen, just talked about it. Unfortunately, the father fell on some hard times health wise. Because there weren’t any plans in place, the son was ill prepared to take over and run the business. His heart was in the right place, he just hadn’t been given the proper training to run the business.

As it turns out, the business ended up being sold rather than passed along to his son to run. There were certain stipulations that allowed the son to work there and continue his career with the business but he wasn’t prepared to run it. This could have been prevented and the son could have owned the business and continued making it a success if they had both done some planning years before the fathers health issues took a toll on him and the business.

Some simple steps to start planning for succession

There are a few simple steps you can take that will start you on your way to a positive outcome for succession. While there are many details around these steps, these should be a guide to help you as you move from the “dream about succession” to the reality of making it happen.

• ​Create a formal strategic succession plan…this is a process that should be done years in advance of when you want to exit the business.
• ​Identifying the family member(s) you want involved…creating a list of potential family members who would be involved in the succession plan is an important discussion to have early in the process. This almost always changes as you move forward, but by having the discussion early you can modify the roles and still stay on track with your strategy.
• ​Map out detailed plans for each family member…putting together a plan for each family member allows you to stay on course and track their progress you have put in place for them. Individuals change as do their interests so having a detailed plan allows you to determine the proper roles for everyone along their journey.
• ​Map out detailed business plans…in addition to the individuals, there needs to be some solid business planning that takes transition and succession into account. This might mean taking some slightly different directions that you might normally take and adjusting them based on the roles of the family members.
• ​Have a “team lead” to be the guide of your journey…you can’t do this alone and most of what has to happen isn’t generally the expertise of the business owner. Their role is to run the business, not be the leader for all the succession activities that need to take place. This was one of the primary reasons we created Your Concierge Counsel^SM to be the quarterback for the business owner while they run their business
• ​Regular and consistent updates towards the plan…this is possibly the most important part of making this actually happen. Making sure that you stay on course and are getting the things done that need to be done when they are supposed to be done is critical to success. Missing dates and actions can collapse many of the plans…I can’t emphasize this enough.
• ​Review and modify as appropriate…having a process where you do some key “checkpoint” reviews to determine if the journey needs to be modified and how are critical to success. As with following through on the actions, reviewing the path and making the necessary modifications keeps everything on track.

If a business owner follows these overall steps and guidelines to business transition and succession, their odds of achieving the dream they started out with go up significantly. When you look at the 2/3 of the family businesses that fail to transition, I can guarantee you that somewhere along the line they missed or didn’t follow one of the above steps. Creating Your Concierge Counsel^SM was born out of this issue…with the primary goal to significantly improve the odds of a successful transition and succession to future generations.