Many family-run businesses turn out to be a causality of poor estate planning. Even businesses that are strong and vibrant can be prone to withering away when it comes time to transition ownership into new hands. This is clearly seen in the fact that 70 percent of businesses do not survive through a second generation of leadership. In addition to that, a meager 5 percent make it through a third generation of leadership.
When sibling, children and grandchildren start to enter the mix, along with such things as deaths or divorces, the structure of ownership within a business can start to muddy.
Proper succession planning is vital in these situations to ensure that key leadership positions are filled once the original business founder has passed away or walked away from his or her work life. When business owners fail to do this, they're essentially leaving the livelihood of their business up to chance once they are gone.
In many family businesses, the owner thinks that the succession plan must include family members in key positions. While this might appease the emotional side of things, sometimes certain people simply do not have the skills to proficiently hold a certain position. The owner must take the emotion out of the equation and pick successors that are qualified to help the business continue to thrive.
This could mean that a business goes from being strictly a family affair to bringing in outside people to take over key positions.
Other business owners want to be fair to their families and divvy up management responsibilities amongst their offspring or family members.
A business can only thrive with a clearly defined blue print of power and trying to put too many people in a leadership role is simply welcoming upheaval within the business. There are other ways that a business owner can be fair to his or her family like by granting them equal stake in the company.
Source: Southern Business Journal, "Succession planning vital for family business," Garrett Reuter, May 1, 2012