The first steps to passing on the family business
Last column we discussed the challenges facing families attempting to pass on the family farm, ranch or other business. Family-owned businesses play a critical role in society. Those of us who reside in rural agricultural areas know this to be especially true.
However, according to the Harvard Business Review, 70 percent of family-owned businesses do not survive the transition to the next generation. This is an incredible statistic. Why would this process result in the end of so many businesses? We believe that this result is entirely unnecessary.
Before discussing solutions, it is important to identify the obstacles. The obstacles may be different than what many family business owners think. When we discuss this issue with clients or potential clients, they typically identify concerns over complexity and cost. In reality, this thinking may simply be a symptom of the actual obstacle, which can affect us all.
The actual obstacle to a successful transition is the failure to start, what we call the failure to “plan when you can.” The strategy for a successful transition may be neither expensive nor difficult. But if those concerns prevent you from exploring your options, it won’t matter how many options you may have. You will have given up the ability to choose any of them. Instead, once the parents are no longer able to operate the business (through death or disability), there will be very few, if any, options available. In that context, it is not surprising the likelihood of success is not good.
There are several strategies that can allow you to preserve the value you spent a lifetime building, and set the next generation up for success. The first step is to make the commitment to understand those options. You can then make informed decisions which are best for you and your family. Without that commitment, the solutions we will begin discussing in the next column will be worthless.