Successful Family Business Transitions

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Planning for business transition or succession is a subset of the broader planning process commonly referred to as “business planning”. The business plan is intended to be a written summary of what the organization hopes to accomplish, and how it intends to accomplish those dreams. The business environment is constantly changing, and any ongoing business needs to think about where the business is going, and how it intends to get there. Succession planning (the topic of this particular paper) is just a special case of the broader topic of transition planning, which is in turn just a component of the broader topic of business planning. Generational transfer (succession planning) is arguably one of the top challenges facing family businesses. In a well managed succession, a stable business in which family members have so much invested can be handed down to the next generation.

While many family owned businesses have a long-term objective of “passing the business on to the next generation”. In reality, only about 30% of family owned businesses successfully transfer to the second generation. Furthermore, only about 15% make it to the third generation, and only about 5% make it to the fourth generation. Why are so many family businesses unsuccessful at making the transition to the next generation? Perhaps it is simply an inconsistency of goals among the various generations (older generation has a dream of the younger generation taking over, but the younger generation really has no desire). In many other instances, however, it appears to be a lack of understanding of the underlying issues, a failure to communicate, and a lack of planning that results in the inability to successfully make the transfer happen. Planning involves communication, which is often difficult and strained in family businesses, and it involves openly discussing topics that often are not talked about (such as finances). In addition, the older generation is often reluctant to release control, and may be somewhat afraid of retirement (they may view it as a loss of identity, or even a step closer to death). Finally, business succession often involves one child returning to the business, while siblings pursue other careers and activities. Issues of fairness vs equality, etc. frequently complicate the succession planning process. When the business and the family are inter twined, the web of relationships becomes quite complicated, and family decisions can have greater consequences that decisions in more typical families. Communication skills and planning are essential to ensure both the viability of the business, and family harmony.

Authors: 
Rodney Jones
Publisher: 
Kansas State University
Year: 
2005