I’ve been working over the past six years with family businesses in transition from one generation of owners to the next. Transitions are, at best, a difficult process. And the odds against successful transition aren’t great. By some estimates, only 40 percent of family businesses make it to the second generation. Of that number, 40 percent make it to the third generation. Those businesses have a 15 percent chance of making it to the fourth generation and after that, the odds drop to 1 percent.
If you’re a family business owner looking to take the business into the next generation, it’s important to start thinking about the transition process earlier rather than later at least five years out. By focusing on three areas, you can increase the odds that the family business will continue.
Focus on the business. Every successful transition hinges on having a sound business to pass on. Strategic planning is important here. Where is the business now? Where can it go in the next three to five years? What challenges need to be addressed? Are there resource issues? What key business relationships do you need to broker for the upcoming generation? What skills and experiences do you need to provide for the next generation of owners before you retire? What’s equitable in terms of business ownership when you leave?
One key question here is what messes do you, as the current owner, need to clean up? For example, take the owner who has a long-term senior employee who is “retired in place” and has openly voiced concerns about the competence of the next generation. If you made the mess, clean it up before you leave.
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Get the family issues out in the open and cleared up. I’ve learned that working with family business transitions is 60 percent business related and 40 percent family therapy. Unspoken and unaddressed issues in family relationships stand a good chance of scuttling successful transitions. This is where emotion overtakes reason very easily. One key issue here is learning to separate roles. Address these issues at the owner/employee level and not at the parent/child level. As the business owner, it’s your job to make sure that the next generation of owners -- whoever they may be -- goes forward with open communication, collaboration and mutual support.
Have a plan for reinventing yourself after you leave. Many family business owners are reluctant to turn over the reins to the next generation because it means that they have to face “reinventing” themselves. For someone who has given much of his or her life to the business, this is a scary place to be. Start early to develop outside interests and think about how you want to spend the first six months of retirement ... and this does NOT include returning to the business on a periodic basis.
Moving a company to the next generation successfully is possible, but it is a challenge.
An experienced business executive and organizational consultant, Jan Flynn teaches at the J. Whitney Bunting College of Business at Georgia College & State University.