It’s often been called the Holy Grail of family business succession plans: anyone currently in charge at a company expects that someone within the family will take over operations as the former owners, the parents, step down.
The reality is that it does not happen that often. Most family business owners have this as a goal and dream, but it rarely works out this way, making succession planning options all the more important for parents.
A recent study by Forbes found that although US families have better wealth attrition numbers than Europe, it’s hard for children and future generations to maintain or grow wealth the way their parents did. US families have a 60% wealth attrition rate for each generation, although the European stats show only one-third of the US rate. However, in Europe, up to 75% of family businesses with stay in the family for four or more generations. In the US, it’s rare for a company to stay within the family for even two generations.
This highlights why family businesses in the US need more in their succession plan than outlining which child will take over responsibilities. What happens if that child has no interest in maintaining the family business? If he or she has other plans and there’s no contingency? Businesses, and in particular family businesses, are exposed to big risks if no succession plan has been outlined, but it can also be a mistake to assume that children or other family members even want to step up to the plate with a family business.
Have a real conversation with children or other key family members about what role, if any, they’d like to play in the business in the future. It might be hard to accept that your loved ones don’t have the same passion and drive for the company, but it’s much better to know now than to expose the business or the family member to a situation that is not ideal.
There are many other options for handling a family business, such as finding in-office talent to rise up the ranks and take on leadership positions or even selling the company. In the midst of the day-t0-day management of the company, it can be hard to shift your mindset from that of dealing with what’s right in front of you and seeing the long-range vision, but it’s also important to incorporate this into your planning.
A family business requires a lot of work and dedication. If your loved ones don’t have the passion now, begin to articulate how someone else might ultimately take your place if something happens to you.
To discuss succession planning issues in greater detail, set up a meeting with a lawyer.