Why Family Business Succession Plans Fail: Planning Strategies
By Jeff Harris
seminal event occurred this year that will have a profound impact on
family businesses in the years to come. The first baby-boomer turned
age 60 and here is why it’s such a big deal. Many of these
baby-boomers own successful businesses and they’re seriously
thinking about (if they haven’t done it already) reducing their work
schedule so they can spend more time doing the things they love. For
those with a son or daughter who is working in the family business,
it’s natural to want to pass the business on to them.
Sometimes, this works out great for everyone. But all too often the
second generation simply doesn’t have the mindset to continue the
business effectively. In “Beating the Midas Curse,” estate attorneys
Rod Zeeb and Perry Cochell reference studies that show 65% of
second-generation family businesses fail and a mind-boggling 90% of
third-generation businesses fail!
you consider that many of these businesses had extensive
traditional succession plans drawn up by brilliant attorneys,
something is dreadfully wrong! Notice that they used traditional
succession plans. Traditional succession plans deal with legal
strategies and tactics to avoid taxes and transfer control to the
next generation. But they don’t address values, morals and
matters of the heart.
Matters of the Heart: What do values, morals and matters of the
heart have to do with successful succession planning? Anecdotal
evidence suggests this is a crucial component (and very often
overlooked) by business families who want to pass on their business
to the next generation. As mentioned earlier, statistics show that
65% of second-generation and 90% of third-generation businesses
fail. So what can those few business families that manage the
succession process successfully point to as the primary reason for
their positive results?
knowingly or unknowingly they have managed to pass on their values,
morals and positive family heritage; in short, matters of the heart.
If you talk long enough to any thriving second or third generation
business family you’ll find they have, to a large degree, embraced
their grandparents’ and parents’ positive heritage. No, they’re not
brainwashed into behaving like clones of Mom and Dad, they have
their own ideas and personalities.
recognized the positive threads that run through their family that
has led to their personal and business success. They’re smart enough
to realize how they too can benefit from these family traits and
they’ve “caught” them over the years. Unfortunately the
professionals who counsel business families as to appropriate
succession strategies and tactics aren’t trained to deal with
matters of the heart. Often, they don’t realize how critical this is
to successful succession planning, so they do what comes naturally;
they ignore it. The dreadful statistics speak for themselves.
can you do to ensure your family business successfully passes to the
next generation? You can hope the kids and grandkids pick up
on your positive family traits, or you can utilize a proven process
designed to do just that. It’s a process that’s been fine- tuned
over the past twenty years and it consists of the following five
1: Determine what’s important to you: Unless you know what’s
important to you and your family, you can’t make sound decisions
that will impact future generations. That’s why the first step is to
recognize what your family’s core values are and how your positive
family heritage has led to the success you enjoy today. Some
questions to consider are: “Who was the most influential person in
your life between ages 10-15 and why?” “What challenges have you
overcome, and what traits got you through it?” “What does an
abundant life mean to you?” and “What three things would you want
your great-grandchildren to know about you?”
You may be surprised to hear your own
answers. But by uncovering what has impacted you in the past, as
well as what you envision for your future, you can see patterns
emerge that can help guide your succession planning process.
2: Create your family’s vision statement: Once you’ve determined
what’s important to your family, you can create your family’s vision
statement. This is usually a four- to ten-page document designed to
unify and preserve the family by articulating what’s most important
to you. Think of the vision statement as a guiding light for
children, grandchildren, and future generations, helping them
understand their unique family heritage and positively influencing
them to live fulfilling, meaningful lives. To supplement the vision
statement, you can also create a video of the family history, where
each parent and/or grandparent “tells their story” so it can be
passed on to future generations.
3: Hold a family meeting: No matter how well you articulate your
family vision statement, it can’t do its job if it isn’t properly
presented to family members. By answering
a series of highly targeted questions, such as, “If you received a
check from your parents for $100,000 today, what would you do with
it?” and “How have you seen your parents demonstrate the values
described in the vision statement?” your heirs will be guided to
self-discover the power and value of the family vision statement.
Remember, you can’t force your heirs to live lives of significance.
In fact, the harder you try to tell them “what’s good for them,” the
greater they will resist. Therefore they will need to be guided to
discover on their own the value of, and personal benefits to them,
of the family vision statement.
Step 4: Create a Family Council:
The Family Council is a powerful tool
to help build family unity and cohesiveness through a shared vision
of the family’s purpose. Family members are given specific duties
and responsibilities, such as investigating how to invest family
money together, identifying those charities and causes that best
align with the family’s values, setting up future family council
meetings, and establishing a budget and agenda, which requires
engagement with other family members to accomplish their goals.
Ultimately, the Family Council serves as a repository for all the
experience, connections, education, know-how, business and people
skills the family has acquired over the generations.
5: Get your team involved: Now that
you know what matters most to your family and everyone is on the
same page, you need to keep your attorney, CPA, stockbroker,
insurance agent, and anyone else assisting with your family business
succession plan abreast of your desires. Armed with a copy of your
family vision statement, these various professionals can help turn
your desires into reality by using their unique skills to create
strategies, tactics and tools designed to bring your vision
statement to life. Realize, though, that this concept of “family
first” may seem foreign and unnecessary to some of your advisors, as
their focus is tax savings and legal strategies, not matters of the
Thanks: At this point it would be normal to think you’re okay
and your family succession plan will work just fine. That may be the
case, but think about this. As you get older, your influence will
naturally wane. Son-in-laws and daughter-in-laws may not hold the
same values and morals dear that have served your family well.
influence declines, their influence will grow. That is unless you
have a process in place designed to preserve your values, pass on
your wealth and help your family live lives of significance working
in a thriving family business. Yes, it takes time and resources to
complete this process. But it could mean the difference between a
thriving business that continues to bless you and future family
members, or a sad statistical foot note.
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