One of the greatest challenges in a family business is that of succession – “who will carry the business on when I am not here”? It’s easy to presume that someone in the family will, but there’s much more involved.
Here are a few fairly stark facts about business owners and succession (courtesy of Abbot Downing’s white paper on transitions):
– One-third of business owners are over age 65.
– Half of all business owners would like to transition out within 10 years.
– Of those who do want to transition out, the group is split between those who want to sell, and those who want to pass the business on to someone.
– Only one-third (33%) of family businesses survive beyond the next generation.
At Henry H Jones, CPA, we have certainly seen these facts evidenced in our own client base – and elsewhere.
We don’t present these facts to discourage you – there are many excellent family business success stories! But when facing your own transition, it’s important to know where to begin.
Specific reasons for failed transitions (also from the Abbot Downing white paper) include:
60% – Failure to communicate
25% – Lack of training for the heirs
12% – Lack of vision
3% – Lack of professional advice on taxes and wealth planning
As professional advisors and business coaches, it’s a little surprising to us that only 3% of business transitions fail because they don’t get the right advice. No, the biggest problem is that of communication. Yes, 60% of business transitions fail due to this factor; but if you notice, 25% fail because the heirs – others in the family business who are expected to take it over – aren’t ready to do so. That’s communication, too.
The good news is (we knew we’d get to it!), successful transitions simply turn those numbers around. If you want to ensure that your business survives to the next generation, you can take those percentages and apply them, like so:
Areas of focus for your family business:
60% – communication
25% – reviewing and evaluating the preparedness of the ‘heirs’
12% – understanding your vision, and defining it
3% – getting professional help and advice
At Henry H Jones, CPA, we’d go even further. We would say that you probably need to get professional help and advice on communication, on preparing the next generation, and in understanding and defining your vision.
We can help, or we can direct you to someone who can. The key is that all these elements come together for the success of your transition. After all, in a recent Forbes report of the richest people in America, four out of the top ten were in the Wal-Mart family. Now that’s family business done right.