Four Challenges To Transferring Family Businesses
Although some family-run businesses started by one generation continue to thrive when transferred to the next generation, this is rarely the case. In 1987, an in-depth study on how well family businesses do once parents pass them on to the next generation revealed:
• About a third of family businesses survive when transferred to the second generation.
• Just 13 percent of family businesses are still in operation by the third generation.
• By the fourth generation, only 3 percent are still in existence.
"These are very sobering statistics," says Ron Segura, president of Segura Associates, whose firm helps larger cleaning contractors market their services, improve business operations, and transition businesses from one generation to the next.
According to Segura, the four key reasons for this are the following:
• Parents never leave: Even though the parents have turned over the business to their sons or daughters, they stay on, making decisions and influencing them how to run things. This becomes an obstacle that can compromise the entire transfer.
• No transfer timeline: A timeline should exist, in writing, detailing when the offspring will take over the business entirely and parents are to be removed from daily business operations.
• No new technologies: While the next generation may see the benefits of bringing in new technologies into business operations, because the parents may be against this, it never happens.
• Emotions: Invariably, emotional issues come up whenever a business is being sold or transferred. But this is amplified when the transfer is made to family members. Often, bringing in an attorney, who will likely be needed to formalize the transfer, can help all parties overcome these emotional tribulations and suggest what is best for all involved.
"While these are the pitfalls, there are also ways to ensure a successful transfer of a family-run business," adds Segura. "Communication, patience, and focusing on what's best for the business make it happen.”