Preserving Your Legacy – and Your Business

Lisa DiCarlo -- Expert Business Source, 1/28/2007 6:30:00 AM

There are more than 24 million family-owned businesses in the United States, making the category one of the most vibrant sectors of entrepreneurship. But two-thirds of them won’t survive past the first generation.

One big reason: Businesses break down when a clear successor is not determined. And most families don’t discuss succession until it’s too late.

“Family businesses are horrible at succession planning, far worse than non-family businesses,” says Wayne Rivers, president of the Family Business Institute, a Raleigh, N.C., consultancy. “We all want love and harmony in our families, and anything that threatens that is shunned.”

The informal nature of families often spills over into lax business habits, says Rivers. But even small companies need to implement sound processes and stick to them – and that applies to succession planning as well. Here are the most common mistakes family businesses make in regards to readying their business for future generations, along with some advice on how to avoid the missteps.

Not having a plan at all. Even a bad plan is better than no plan, because it gives the business a track to run on. Start formalizing your succession plan now; you can always improve on it later.

Waiting too long to make a plan. A successful succession strategy “needs time to fail,” says Rivers. Thinking about a succession plan one or even two years before you’re ready to turn over the business is simply not long enough to see if your plan needs tweaking. Forward-thinking owners will have a plan in place 10 years before they have to implement it. “The plan has to have time to go through its ups and downs and sideways movements,” he says.

Failing to look beyond estate planning. Planning the financial transition for your business is only part of the equation. Business partners need to decide, together with other family members, who will take over the day-to-day operations of the company and who is best suited to particular jobs. Once that is decided, they need to hold themselves accountable. “We’re equal when we’re kids, but when you’re 40ish you are not equal,” says Rivers.

Failure to adapt. Even good succession plans should have some provision for change. If after three years some elements of the strategy are not working out, family members must put their heads together to execute a modified plan.

Keeping it all in the family. Rivers says less than 1% of family businesses have outside advisors such as a board of directors. That’s a mistake, because outsiders can provide objective advice. Many business owners fear losing control if a working board is involved in setting their strategy, but Rivers says companies as small as 20-50 employees can benefit greatly from outside input.

Lisa DiCarlo is a freelance writer based in Newton, Mass.

Additional resources:

Family Firm Institute: an organization dedicated to providing interdisciplinary education and networking opportunities for family business and family wealth advisors, consultants, educators and researchers.

Family Business Consulting Group: A consultancy for family-owned businesses.