As an owner manager you have built up a good business and have been assuming that your children (when old enough) will eventually take over and continue to grow the business. But the penny will drop that your children will not be doing this for a variety of reasons, including some great reasons such as they want to follow a different passion or career. So succession planning often happens too late.
Combine this with research from the USA that has shown that 88% of current owner manager and family businesses believe the same family will control their companies in five years, but succession statistics undermine this belief. Only about 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond. This research indicates that family business failures can be traced to one factor: a lack of family business succession planning.
This problem is encountered far too frequently and points out how vital it is for a family business and owner manager companies to have open and honest conversations about what will happen with the company when the founder or current generation eventually retires.
Unfortunately too many business owners put off succession planning discussions far too long. Subconsciously they know that their children are not prepared to succeed them or they have no interest in doing so. Sadly, too many don’t want to admit this because the family business is more than simply a company, it has been a major part of their life for so long.
Based on our experiences and discussions with owner manager and family business owners about succession planning there are a few things you should start thinking about now.
Do not assume that your children will be as good or as committed as you are in running your company. Entrepreneurial skills are not inherited by children, and you need to assess this during your exit or succession planning.
Passion or necessity has often driven an owner manager to start and build successful companies. If your children are not passionate about wanting to take on your family business and will be doing it out of a sense of obligation, then your business will almost certainly not continue to prosper once you pass on the reins of the family business.
Do not assume that your current long term employees will be happy with your children taking over as the new owner manager. Quite often these employees are more qualified and knowledgeable in the management of your business than your children may be. The dynamics of current employees versus family members in succession planning for a family business is a serious concern and needs to be handled correctly.
And finally (for now at least) do not assume that the future monies, dividends or payments you are planning to receive from the business to fund your retirement will automatically be there when needed. Experience will have taught you that businesses go through ups and downs and earnings are not always guaranteed. This is blatantly true if you turn your company over to a family member who is not fully prepared to be the new owner manager and all that entails.
These factors and more are critical to consider as you begin to think about leaving your business to family members. If you have not spent years preparing and grooming your children to take your place, and if they don’t have the skills necessary, and if they don’t have the passion for your business – you could be heading for trouble.
CMC has put a guide together to help business owners with succession planning and think about their exit strategy, download it from here
If you want to discuss your personal objectives and how to prepare for your future exit or business sale, call 01491 829181 or alternatively contact us via this form.