Why families don’t retain their businesses?
As noted earlier, a surprisingly small number of family-owned businesses survive transition to the second generation. There are two common reasons why families don’t retain their businesses. The first reason is straightforward: there is no qualified successor. However, even if your business will not be passed down to the next generation, making sure you take steps to ensure the value of your business survives is just as important and is really just another form of succession planning.
The second major reason for unsuccessful business transitions is more unfortunate. In many cases, family businesses fail or are sold off because of a lack of planning. Though most of us are careful to safeguard our personal assets, for example, insuring our homes, many businesspeople do not plan ahead to safeguard the value of their business.
At first glance, this lack of planning seems incomprehensible. But, when you look at the personal and family issues involved, it is easy to understand why many people just don't want to deal with the issue of business succession.
For most business owners, their business is their single largest asset in terms of value. But, beyond that, their business also represents a major source of self-esteem and personal worth. In short – for many business owners, their identity is very much wrapped up in their business. So, thinking about how they might exit the business means they must come to grips with personal identity issues. Consequently, many just don't want to think about the day when they retire and are no longer running the business.
In addition to the fear of retirement, the business succession process must invariably deal with the business owner's death. Surveys showing how few of us have prepared a will are clear evidence that death is difficult for most to contemplate.
Finally, for those individuals making it past the first two succession planning hurdles (contemplating retirement and death), there is one more tough issue that is easy to put off: picking one child as your successor while ensuring you are being fair to all your children.
All of these issues are difficult to deal with. Because it takes time to thoughtfully address these issues, planning for your succession is – by necessity – a process rather than an event. Also, given that most of the major decisions to be made are of a personal nature, the process used to manage each family's business succession will vary greatly depending on the nature of the family issues involved. Consequently, there is no one approach that will work for all business owners.