Family businesses are very common. According to some reports, there are more than 24 million of them in the United States. Many of these are small, just run by the original founder and their family members.
However, as often as you see family businesses, they do face their own challenges. By the second generation, reports claim that 70% of these family businesses either get sold off to a third party or fail and go under entirely.
How can business succession planning help?
One reason that the next generation may struggle to keep the business going is simply that proper business succession planning was never done. For instance, maybe the child who inherited the business never wanted it, but they weren’t asked about their plans. Perhaps they wanted to start a company of their own or embark on an entirely different career. If they inherit their parent’s business anyway, then they may feel they have no choice but to sell it to pursue their dreams, or they may try to run it anyway—but with limited success.
Doing business succession planning not only gives family members a chance to talk about their vision for the future, but the person who will take over the business can get on-the-job training in advance. They can learn from the founder so that they truly understand what makes the business work and what steps to take. This can help them avoid mistakes and it makes the transition go more smoothly.
There are many different steps to planning in advance, such as identifying beneficiaries who should have leadership roles in the next generation of the company and setting up the legal framework for the transfer. Those involved need to know exactly what legal steps to take.