Will Your Family Business Survive You?

A family business, or a series of family enterprises, can fuel the growth wealth for your family from the first generation on down – if it survives.

Statistics vary on exact percentages, depending on which study you look at, but most all agree that the number of family owned businesses surviving into the third family generation are dismally small – around 12% and those that make it to the fourth generation are at a even fewer – around 3%.

Why Don’t Businesses Survive the Founding Generation?

Lets assume you are a successful self made business owner – with a thriving business that produces bountiful income and is still growing. You – as the founding generation – probably poured your blood, sweat and tears – and many hours away from family into getting that baby off the ground and running smoothly. You barely had time to tuck the kids in, let alone help them understand what you were doing and why.

Your family probably hasn’t discussed what the business means to it’s current and future livelihood. Most families don’t take time out of their busy days to develop a vision of where they want the business – and the family – to be in the next few years, let alone the next 100 years!

Your kids grow up and want their own independence, their own lives – and when you are finally interested in talking to them about the business, they are not willing to listen.

The Family Business Institute claims that 88% of surveyed business owners believe that family members will be taking charge of their business, when in reality only 30 or 40 percent even get passed to the second generation successfully.

Do You Want Your Business to Survive?

If so, you should consider address what Paul Karofsky, a family-business consultant and principal of Transition Consulting Group thinks are three main reasons they fail to survive:

• Failure to agree on goals (family, personal and business)
• Failure to nurture and grow leadership in the next generation
• and unresolved conflict – either in the family or in the business.

Legacy and Leadership by Mark Haynes Daniell and Sara S. Hamilton addresses in some detail, concepts on how to nurture and grow that leadership within your family legacy.

Multiple resources are available to assist with unresolved conflict, including an explosion of family business studies, programs, firms and consultants willing to work with you, your business and your family to root them out and extinguish them.

Multiple authorities on wealth longevity (such as Daniell, Hughes, Jaffe and Preisser) recommend that before a family tries to figure out how to keep the family money machine going, it needs to develop a common vision, mission and family charter – agreeing on common goals. The theory is, that if family members of each generation buy into the mission and it’s associated goals, they will be more open to accepting some of the restrictions and responsibilities (such as assuming leadership of the family, the legacy or the business) that exist in the 2nd generation and down.

What do successfully transitioned family businesses do?

They hold family meetings.

Family meetings allow each identified member of the family a forum to learn, train others in the next generation and express their issues. Annual family meetings can set up family governance and structures which provide the next generations with ways of being involved, or skipping involvement in the family business. The governance and structures can promote leadership by providing opportunities for next gen family members to practice outside the business and they can identify requirements agreed to by all family members for criteria of entry to the business.

They do strategic planning.

Successful transition plans include not only the legal documents required to pass the business assets, but also ways to identify the best future successors and train them. The plans done by successful families layout the long range mission for the business within the context of the family.

They have a board of advisers and a board of directors.

Firms that successfully survive from generation to generation do not operate solely on input and direction from within the family. Outside advisors and directors who do not make their living from the family or it’s business (i.e. don’t hire the family accountant as an adviser for the business) provide balance and dutch uncle mentoring that a business may sorely need – and will not get from someone tied closely to the family.

Sources:

Family Business Institute: http://www.familybusinessinstitute.com/index.php/Succession-Planning/

American Management Services: http://www.amserv.com/familystatistics.html

Business Week

http://www.businessweek.com/smallbiz/content/feb2006/sb20060210_476491_page_2.htm

Family Legacy and Leadership – Preserving True Family Wealth in Challenging Times by Mark Haynes Daniell and Sara S. Hamilton, copyright 2010, published by Wiley & Sons (Asia) Pte. Ltd.

Family Wealth – Keeping It in the Family by James E. Hughes Jr. Copyright 2004 Published by Bloomberg Press