So many of us grew up hearing about the American Dream. A family opens a small business that grows and passes through multiple generations. Perhaps it was a corner grocery store or an ice cream shop or maybe a plumbing contractor. Regardless of status, you always knew that with hard work, sweat and dedication, that dream was there for the taking. New companies open and thrive every day. But keeping these ventures going for a century or more, especially under family control, is a bit trickier. Studies routinely show that more than 30 percent of businesses survive into the second generation, but only 12 percent are still going into the third generation. There are many reasons for this including lack of family members interested in the business, not keeping up with current trends and tax issues. Still, there are plenty of companies that successfully make these transitions. Here are some things to consider in succession planning:
- Identify family members who show an interest in making the business their career. Most children of entrepreneurs work in the firm early on, but they may develop other pursuits growing up. It’s important to recognize those who have a passion for making the company their life’s work. Have a frank conversation within the family to ensure decisions are made to benefit everyone – including those who have no interest in joining the enterprise.
- Keep open lines of communication between the generations working in the business. The younger generation may have new ideas that will keep the business viable. It’s important for the previous generation to listen to those ideas and implement the ones that make sense. A 2003 Automotive News article reports the Ford Motor Company lost a full one-third of the United States car market between 1924 and 1926 because of Henry Ford’s reluctance to develop a successor to the Model T, despite his son, Edsel, pleading for a new vehicle. The generations must work together to keep the business growing.
- Understand market conditions and adapt as necessary. Consumer tastes and needs are always changing. New products and services will help your firm compete.
- Consult an attorney to handle the legal transition from one generation of owners to the next. The attorney will draw up the legal papers, file them and help with tax consequences.
There’s nothing better than watching a family business grow from one generation of owners to the next. We can help make it happen.