Knowing Your Motive: Succession Planning and the Family Business

10 Feb Knowing Your Motive: Succession Planning and the Family Business

If you have a family business, you’ve probably poured your heart and soul into it, building it into something for your children. The trouble is, only about 30% of family businesses make it to the second generation. And only 12% make it to the third.  How could this be? A strong business should be able to pass along to the next generation easily. But it’s important to be clear about everyone’s motives: yours, as well as your family’s. These motives aren’t usually discussed, but they need to be, for the health of the business.

Your Motives
When making a succession plan, take the time to consider your own motives. Everyone has a hidden agenda – what’s yours? Some of the most common include:

• Emotional: You created this business and built it into the success that it is today. This business is your baby. How can you possibly abandon it to a corporation that won’t appreciate it? Certainly your child understands how important it is.
• Patronage: You take care of everyone, so everyone comes to you for help. The business has provided for everyone in your family for years. Why should it stop now? Bringing your son or daughter into the business is the best way to ensure it continues to provide for everyone’s needs.
• Control: You may thrive on responsibility and power. Sure, you’ll never be the prime minister, but that doesn’t mean you can’t have influence in your own little corner of the world. And if your son or daughter takes over, they’ll still listen to you when you make suggestions about the business.
• Denial: You have been active your whole life and have no interest in retiring. You probably think you can keep working as long as you like – if your child is in charge. Plus, you can watch your child and feel like it’s still you in that CEO chair.

Read those motives carefully. Do any of them feel familiar? If so, unfortunately, they aren’t likely to translate well into a successful transition. More likely, they will lead to an explosion within the family.

Their Motives

The other side of the equation is their motives: your spouse, your children, or any other relatives who feel entitled to take over your business. The motives are often a combination of factors that often have nothing to do with the business itself. You may only learn the extent of that emotion after you have begun succession planning.

• Emotional: Your business may be a major source of parental absence, family sacrifice or even the sense of parental preference. Your children may need to leave that behind.
• Patronage: Your children may not want to be the providers for the next generation the same way you were. They may have their own hopes and dreams that may take precedence.
• Control: You’re driven, independent and control-oriented… at work and at home. Your family may need to distance themselves from that in their own work life.
• Denial: Your children may be giving off signals that they aren’t interested. Living with mom and dad is bad enough, but working with them may be unthinkable.

When it comes to succession planning, the worst thing you could do is nothing at all. Not making a plan is a guarantee the business will fail after you step down.  Businesses that successfully transition into the next generation are open and honest about the players and their motives. They take these motives and goals and formulate a plan to satisfy everyone – including the business.

To learn more about transitioning your business, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.