There’s no question that family-owned businesses play a vital role in the American economy. According to Forbes, family businesses generate half of the country’s gross national product (GDP). Just as family businesses play an important role in the American economy, they also shape you, your family and your lifestyle as a business owner.
Because your business plays a vital role in your life, you have probably taken steps to protect it through the future. Although business drives America, the bad news is that half of all family businesses do not survive through the third generation. Why is this the case?
Personalities shape people… and businesses
According to Forbes, part of the reason why family businesses fail is that people continue to espouse the same personality despite their roles in operation even after significant changes occur, like when a father retires and passes management to his children. The potential conflict between personalities and assigned roles can degrade the business and eventually lead to its failure.
No parent wants to set up their children for unintended failure in the future, which is why succession planning is essential to the long-term viability of a business. Succession planning doesn’t necessarily have to mean that a family member maintains complete control of a business either. It just means that a plan is in place for the business to identify, pass and operate under a new leader or structure.
When considering how you want to pass on your business, you will have to ask yourself a set of questions to start planning successfully. These questions include:
- Who do I want to lead the company?
- What are my and my successor’s goals for the company?
- What steps do I have to take to pass it onto this person or group?
- What do they need to know about running the business?
- When will succession occur?
- How will the company change once I am no longer here?
- How will my retirement assets from the company be protected?
- What potential problems do I anticipate with this plan?
Once you begin to formulate a succession plan, keep in mind that this is part of your business plan. Keeping the future in mind, both the succession plan and business plan should evolve as time passes. With a large role in our economy, it’s almost certain that family businesses will be the future of our country, and now is the time to consider how this notion will shape the future of your family.