Business Succession Planning

The numbers appear alarming. Only one-third of family-owned businesses survive the transition to the second generation. And of these businesses, again only one-third will survive to the third generation, meaning that the chances your grandchildren will take over your business are about 1 in 10.

As a business owner, you'll want to ensure that your business continues to succeed after you retire, whether your children succeed you or you sell your business to others. This section is designed to help you start thinking about the future, give you some ideas to consider, and to highlight the key ingredients of a successful succession plan.

Why Families Don't Retain Their Businesses

There are two common reasons why a family does not retain their business. The first reason is straightforward - there is no qualified successor. However, even though these businesses will not be passed down to the next generation, you can still take steps to ensure that the value of your business survives, which is really just another form of succession planning.

The second major reason for unsuccessful business transitions is more unfortunate. In many cases, businesses fail or are sold off due to a lack of planning. Although most of us are careful to safeguard our personal assets, for example by insuring our homes, many businesspeople do not plan ahead to safeguard the value of their business. At first glance, this lack of planning seems incomprehensible. But, when you look at the personal and family issues that are involved, it is easy to understand why many people just don't want to deal with the issue of business succession.

For most business owners, their business is their single largest asset in terms of value, but it also represents a major source of self-esteem and personal worth. Consequently, many business owners just don't want to think about the day when they will no longer be running the business. In addition to the fear of retirement, the business succession process must invariably deal with the business owner's death. This issue is difficult for all of us to deal with, as evidenced by many surveys showing how few of us have prepared a will. Finally, for those individuals making it past the first two succession planning hurdles, there is one more tough decision that is easy to put off - how can I pick one child as my successor while being fair to all of my children?

These are difficult issues to deal with. Consequently, planning for your succession will, by necessity, be a process rather than an event, as it will take time to address these issues. Also, given that most of the major decisions to be made are of a personal nature, the process used to manage each family's business succession will vary depending on the nature of the family issues involved. Consequently, there is no one approach that will work for all business owners.