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Insight: Planning for the Future of Family Businesses

Jul 29, 2019

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Insight: Planning for the Future of Family Businesses

Conflict negotiations are an everyday experience for many family businesses and are especially common in those family businesses where there is not a well-developed management infrastructure.

Family businesses generally start out with a very informal management system. The loose and informal style of management offers a high degree of flexibility – not of lot of rules, regulations and red tape. There are not many standard polices and practices to get in the way of the entrepreneurial spontaneity associated with start-up family businesses.

However, many family businesses never evolve beyond this level of management style. It is one of the reasons that only about 30% of family businesses successfully transition to the second generation; only about 12% successfully transition to the third generation; and only about 4% successfully make it to the fourth generation.

Operating without a plan can create negative self-fulfilling prophecies. In a surety industry survey, 16 percent of the respondents said members of their company’s key management team quit because no ownership transfer plan was in place.

Business succession should be a straightforward and necessary component of every business, said Wayne Rivers, president of the Family Business Institute Inc., in Raleigh, North Carolina. “But when the equation gets colored with love and emotion, everything gets difficult,” he said. Discussing management succession, Rivers said, is not just about who will own shares or assets in the future, but about what role individuals will play in the day to day operations of the organization itself.

Along with the lack of time, business owners in a Family Business Institute study listed other reasons why succession plans were put on the back burner:

  • Too early to plan for succession
  • Can’t find adequate advice/tools to start
  • Too complex
  • Don’t want to think about leaving
  • Conflict with family or employees

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