Corporate succession is one of the most defining moments in the history of a family business. Many parents and grand-parents that have built family businesses from scratch, hope that one day, their lives’ work will pass down to their children and their children’s children, and their legacy will stay alive even after they retire.
This is, however, not always the reality, as surveys show that most children of business owners would rather switch businesses and industries, or follow an entirely different career path.
In fact, the US Bureau of the Census reported in 2019 that about 90% of American businesses are family-owned or controlled, but only 40% of them turn into second-generation businesses, approximately 13% are passed down successfully to a third generation, and 3% to a fourth or beyond (Businessweek.com, 2010).
The vast majority (91%) of founders of small, family-held businesses say that they want their children or other family members to take over their company and stay directly involved with the business. According to the latest Small Business Pulse Survey, this is mainly because founders want the business income to stay within the family, they feel that the business vision will remain the same, their legacy and company name will not change, and they might also have the opportunity to get involved in business decisions from time to time.
What happens though, when your children refuse to take over the family business, and a “stranger” has to come into the picture and take control of the company that you built decades ago?
Your Children Are Not You
“If my children came to me and said that they don’t want my business, I would say thank God,” says Jack Garson, Leadership Strategy writer for Forbes.
“I hope none of your children ever want to take over your business, because they are not you, for the most part. They have never put in their sweat equity and the sacrifices that you had to do to build this business, to build your empire.”
“So, what you really want to do is sell through a third party to someone who is business-minded, and will help take your business to the next level, even if you are no longer part of it,” Garson adds.
So, when it comes to succession in family businesses, there is a variety of emotional challenges that both children and parents have to overcome. Specifically, 62% of children indicate that it is very unlikely or somewhat unlikely that the business will remain in the family, while only 38% express interest in succeeding their parents company.
For the children of entrepreneurs, the first difficult question is whether they can imagine a life in which their parents are not only their parents, but also their boss. This, of course, can bring additional tensions into the business, disagreements over corporate decisions and even divide the family.
Unlike old times, where their parents did not have many opportunities, young people today, have a plethora of options to choose from, study, work in another small, medium, or large corporation, or even begin their own startup ventures. Children do not want to disappoint their parents, but they also do not want to become a mosaic piece in their parents' life planning.
Additionally, what is missing from young people today, is the willingness to take risks and elevate a company’s commercial thinking with strategic decisions, since it is much easier to find a well-paid job without taking the risk of having entrepreneurial independence and responsibility.
What is important for business owners to understand is that their children should be free to explore different career paths, different jobs and roles, and if they choose to follow their parent’s footsteps, it must become clear early on whether it is their inner desire to take over the family business.
Find the Right Buyer
Many successful companies disappear from the market in the long run, because their owners do not succeed in finding a suitable successor. If your children are not interested in taking over your business, then your best option might be to sell it to somebody appropriate, somebody who will understand its real value and the work you have put into it, and will help making it even more successful.
Of course, this can be a very painful decision for you, as you have worked really hard to build your business, but selling it will give you an opportunity to start new projects or retire, spend time with your family and grandkids, be an active member of your community, travel and start a whole new chapter in your life. Moreover, the proceeds you will make from the sale of your business will help support your family far into the future. Even though the business will not be owned by your family anymore, you might still have a role in it. You might work for the new owner or participate in various management decisions. It all depends on what kind of agreement you make with the buyer.
Of course selling your business is not easy. In fact, it requires the same amount of time and effort that you dedicated when you built the business from zero.
Selling your Business is not an Event, it is a Process.
This process usually takes between 12-18 months or even more in some cases. It all comes down to the preparation you have done ahead of time to get your company ready for sale. You need to look at all the critical areas of your company – such as legal, finance, IT and IP systems, marketing, sales, human capital, contracts, and many more – and make sure to fix any issues that might impede the value of the company and lower the final price that prospective buyers will put on it.
This might seem like a lot of work, but you can always get help from experienced consultants and attorneys that can help you in your business sale and negotiations with buyers.
The Growth To Exit online course covers all the steps that you need to take in order to get your business ready to sell, find and fix problems in critical areas of your business, maximize the sales potential of your company, learn how buyers think, as well as create a plan for your life after the sale.
Start Planning Early
Careful succession planning plays a decisive role in the success of corporate succession. It is also regarded as an elementary component of strategic corporate planning, and is designed as a dynamic process that takes into account the changing concrete family and company situation.
More precisely, succession planning is a sub-area of personnel development which aims to ensure that important key functions in the company can be filled in a timely manner and in line with requirements, when important employees leave the company.
Succession planning is not just important for finding a new owner for your business, but also for filling in positions of other employees and family members that leave the company.
In the near future, the baby boomer generation will retire in the US. By 2025, more than 30 million skilled workers will leave their jobs. So, when you are looking to find the right buyer and successor for your business, consider the following:
When you are a business owner, you should always consider the possibility that your children might not want to take over the family business after you, and then plan your succession accordingly, or start looking for potential buyers.
There is a big number of highly skilled buyers out there who are always looking for a great opportunity and a business for sale that they can invest in and help it grow. This, in fact, might be a much better option for you, as pressuring someone in your family to take the reins of your company when they are not fully invested in it, could really be a recipe for disaster.
While this option may not have been part of your original plan, it could still forge a successful future for yourself and your family, if you start planning early with the help of an attorney or a business consultant to ensure a smooth transition to the new buyer.