Will Your Family Owned Business Survive Without You?
16th February 2012 · 0 Comments
By: John Keener, TAB-Certified Facilitator and SBL-Certified Coach, St. Louis, MO
Family owned businesses comprise 80 to 90 percent of all business enterprises in North America. So it shouldn’t surprise anyone to know that family owned businesses account for 60 percent of the total U.S. employment. What may surprise you is that 40 percent of all family owned businesses will be passing the reigns over to the next generation in the next five years. It may also surprise you to know that only 40 percent will survive into the second generation, 12 percent into the third and three percent into the fourth.
So why is the mortality rate so high? Let’s take a look at the most common mistakes that perpetuate that failure rate.
- Poor succession planning. In my estimation this is the primary reason companies do not make it through the next generation. Either the transition came about unexpectedly due to illness or death, or the owner did not make adequate plans for retirement. In either case, the best way to avoid this critical mistake is to have a transition plan in place regardless of your age. It can always be altered if necessary. Involve a business advisor, an estate-planning attorney and your CPA, and develop a written plan that includes all those involved. Be very clear and specific as to how you want the transition to evolve. Leave nothing open to question.
- The next generation is forced into the family business. Every generation does not necessarily have the same passion for the business that you may have. Forcing a child into the business can have dire consequences because they will not have the same passion, dedication and enthusiasm. Plus, you will make your off-spring miserable. Determine well in advance if they want to come into the business. If the answer is “no,” develop an alternate plan (i.e. sell to employees, etc). If the answer is “yes,” put your plan together and work your plan.
- Next generation is not and will not be qualified to run the business. This is one of the toughest things for a parent to admit to. But if you do not make an accurate assessment, you will be seriously damaging the business and putting your child’s well being at risk. If he or she is not capable of leading the company to the next level, it is not the end of the world. Employ a qualified family business counselor to discuss the many options available to you.
The bottom line is this: it is never too early to start planning your exit strategy. You and your family will prosper from it.
John M. Keener, of The Kelsey Group, St. Louis, MO, has spent over 30 years in senior and executive level management with Fortune 500 and small startup organizations. A vast majority of his experience has focused on sales and marketing including sales force organization, compensation realignment, strategic planning, profit enhancement and initial public offering experience. As president of two organizations, his experience extended into operations and product development. Mr. Keener earned a BS degree in psychology from Ohio State University.
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