Family businesses have a rich history here in the U.S. In fact, of the Fortune 500 brands dominating the economy today, almost 35% are considered family-owned. While few of us have the possibility of being handed down a major corporation, parents generally consider their children to be the first in line to inherit both the assets of a business and the management. Plumbers, farmers, food truck operators, and even franchisers are quick to look to their next generation of the family name to carry on the tradition – and the operation – of their carefully-built business empire.
More Are Saying “No, Thanks”
There is no shortage of films and books telling the age-old tale of the founding father hoping that their child will get into the family business – only to realize that they want the autonomy to choose their own career path. It’s no longer socially acceptable to assume that “Smith and Sons” will ever include the sons, especially as the Millennial generation prides itself on individuality and doing the thing that causes them the most career (and personal) fulfillment. While Gen Y is the most likely to start up a side-hustle and take some career risks, they also want to make their own mark on the world. If fixing leaky pipes isn’t their thing, they are likely to move on.
It’s impossible to know just how many biz kids have passed on the opportunity to continue a business legacy, but we do know that businesses tend to more at risk with each passing generation. Second generation companies have a survival rate of just 30%, and those that make it into the fourth generation are a tiny remnant (at just over 3%.) While we can’t speculate why the attrition rate is so negative, you can’t deny that some founders’ families just aren’t that into it and may be lacking the skills to continue with such an entrepreneurial endeavor.
Family Business Succession Planning Tips
So, what’s a parent of a family-owned business to do as they approach retirement? How can they ensure that they can keep their company – and their relationships – intact through their final years? Here is the expert advice that family succession pros say works best:
1. Start now
Don’t wait until you’re sick, old, retired, or disinterested to begin planning for your exit from the business. Even if you still plan on staying on in a consulting role, it’s never too early to begin strategizing for the next steps.
If finances are an issue, you can buy yourself time to find a successor with the right financing options. Nav can help you find the best options for your business.
2. Ditch the “oldest” gets everything approach
Picking who gets the family business by age, gender, or other defining qualities that have little to do with interest or business acumen is outdated – and may strain relations with your kin. When deciding who is best suited to carry on the family business, you should do it the same way you would with any hiring decision. Look for those skills that will count; avoid the temptation to choose your successor the way the royal family would. You are choosing the next CEO and CMO, not selecting your kids for duke or duchess.
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3. Seek outside counsel
On that note, it’s likely that separating feelings from fact is impossible. Despite what they tell you, most parents have favorite children at various points in their life. Having one child on the outs shouldn’t immediately disqualify them from business service. Get the assistance of a talent team or HR pro to way all of the options.
4. Consider other types of family
While many company founders assume their work will go to the kids, there are other possibilities to keep things in the family. Nephews, nieces, cousins, and step or half-relatives can all be potential successors with just as much interest as your sons and daughters. These relatives can sometimes be more interested in taking over, as they may not have worked as closely over the years and have a purer perspective of how things work.
5. Get input
Certain industries, such as agriculture, start grooming kids to take over the family business from a tender age (as young as eight or nine years old.) But for most businesses, it’s more suitable to gauge interest when children are beginning to figure out what they want to do professionally. Kids in high school, looking ahead to college, may have not yet figured out what they want to do yet, but knowing there is a family business to help with could lead their college courses. Be sure to ask them what they want, before they commit to expensive career paths. Some children just need to feel included in the conversation.
6. Keep a clear head
There are all kinds of anecdotes about how mixing family and business is a bad idea, but the history of the world tells us that it’s a more natural partnership than shows like The Profit would have you believe. If there is a danger in considering how to pass your business on, it’s in making decisions when you’re prone to judgmental errors. Picking a successor when you’re sick, stressed, or flighty isn’t a good idea. Of course, many parents wait until they are truly in trouble to have these conversations and may not have a choice. That’s why rule #1 is so important.
There are many options available for parents who find that none of their kids want their business. The choices are similar to those who don’t have kids, at all. Remember that there are plenty of founders who have no kids to pass their companies on to, and they’ve started their succession plans early for that reason. If nothing else, approach your decision to preserve your company as if you have no family at all. If your kids do end up deciding that they’d like to lead the way for the next generation, it will be a pleasant turn of events for you and your corporate legacy.
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