Statistically, more than 75 percent of family-run businesses don’t survive the second generation. That’s an eye-opening fact and one that can be difficult to swallow. Where the CEO of a publically traded company is at the helm for an average of six years, CEOs of family businesses hold their position for more than 20, and the mean age of a family-owned business is 60 years.
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Here are some ways for you to prepare your children to take over for you once you retire.
Don’t leave your succession planning for the last minute. For one, the unexpected could happen, leaving your business and your family in a bind it can’t get out of. But one of the reasons you need to start your succession planning early is so that your family members know what to expect. Announcing your successor at your retirement party is a sure path to disaster. Your clients won’t be prepared, won’t have relationships built, and will feel abandoned. Your family members could feel resentful if they didn’t get the position they wanted, creating conflict. And that leads us to the next item on the list.
Set Expectations for Succession Early
The most common reason most family-run businesses put off succession planning (or avoid doing it altogether) is that the leader of the business doesn’t want to cause strife among the family. However, conflict can be reduced, or at least dealt with early, when expectations are set early regarding the roles family members will play within the company. Put this plan in motion as early as possible, several years before you plan to retire. Address each family member individually to discuss strengths and why you want them to fill a specific role within the company, their goals, and how you will help them get there. While a family member might be disappointed they didn’t get the role they wished for, they will know that you are invested in their future.
The Right Person For The Job
Don’t choose a successor because they’re the oldest child, your male heir, or other demographic markers. Choose a successor because they’re the best person for the role. Be honest with yourself regarding strengths and weaknesses. For example, if Child A has a short temper but is a wiz with numbers, a role in accounting for the company will be more suitable than a supervisory role. If Child B has a great amount of patience, an eye for the big picture, and a great amount of creativity but isn’t good with crunching numbers, a leadership role could be more suitable. Put your children’s strengths to use, and don’t put them in a role they’re not going to thrive in (which will subsequently keep your company from thriving).
Prepare Your Children For Their New Roles
It’s possible that you’re the one who is fulfilling the role of several people in your business, and that you’re working overtime to make things happen. Because you’ve been so intimately involved in the business and know it inside and out, you are the only person who can truly train your child for the role they’re about to step into. However, your children need to have proper certifications, education, and other training to be able to take over these roles as well. Even while they’re in high school you can discuss the possibilities of filling certain roles in your company, and how they could potentially fill those when they’re of the right age.
Be a Good Role Model
Even if you work long hours as a business owner, be sure you spend quality time with your children. When it’s time for your children to take over your business, they might not want to do so if they never saw you growing up because you worked 60+ hours every week, did business over vacations, and were on your phone the few hours they did see you every day. Establishing a work-life balance sets a good standard for your children, showing them that while you do work long hours, the time you’re at home is theirs. If stepping into your shoes isn’t appealing to them, they’re going to be hesitant to do so or decide to not do it at all.
Don’t Force the Issue
Your kids might not want to take over your company at all, and this could be a huge disappointment to you. Some parents force the issue and put their children in a tough spot. When your kids have no interest in taking over, their lack of enthusiasm is going to ensure a recipe for disaster. While some might get into the role and decide they actually like it, that’s very rare. Don’t push them into accounting if their passion is healthcare. Their skill set could be all wrong, but more importantly, they will likely resent you for not allowing them to pursue their own path. Your business is likely to fail. In this case, you should consider leaving shares of the company to your children, but allow another person to step into your role.
AdvisorRETIRE is your source for succession planning. Our experts will work with you to determine a succession plan, work toward your goals for retirement, and ensure you have the right paperwork and know-how to make your retirement a success. Sign up with us today to make sure you’re ready for the future.