Succession Planning Needed for Small Business
March 9, 2021
According to estimates, 70 percent of family-owned businesses do not last into the second generation and 90 percent do not survive into the third generation. Family-owned, private, or owner-managed businesses should develop a strategic succession plan as part of their early business formation and planning.
Almost half of all entrepreneurs come from family-owned businesses. A succession plan for these businesses should, in addition to technical matters, address personal and family matters such as competency, relationships and other internal issues.
Interested next-generation members should now play a role in these businesses. Current owners must learn whether the next generation is interested in taking the business over.
Family business owners or their founders need to share their business vision and goals to future owners. Consideration of these matters helps successive generations assume ownership and engage in appropriate business planning.
Allowing time for succession allows successor owners to adjust and become familiar with running the business. Allotting time also reduces ambiguities and helps employees prepare for a smooth transition.
The next generation should have outside experience and received training and preparation. Potential successors must show competency and accountability with their work.
Non-family employees should also help advise and prepare the next generation. These measures give non-family members a stake in the success of the business and assure other employees that the successor is qualified, and nepotism did not play a role in their elevation.
Family business owners typically ignore succession as long as possible to avoid conflict. But many important issues stay unresolved and cause bigger problems as they get worse with age.
Business owners, especially in first-generation family businesses, need to consider whether the family should continue to run the business and if management should be involved in the decision process. If the business remains in the family, owners must create structures in the business to assure that it happens.
When non-family managers are hired, the business should consider how the company’s philosophy stays consistent with the family’s values and well-being. The ownership structure must be reviewed if there are several new hires.
Owners and management face many overwhelming issues when addressing succession and other business issues. An attorney can present different ways for business to organize and operate.