When Business Is Personal
Learn some of the key considerations for transforming a family business into a legacy.
A family business can take many shapes. It can range from a small mom and pop to a publicly traded behemoth in which sprawling third and fourth generations hold controlling shares.
Regardless of size, there are common challenges a business needs to address to survive past even the first generation. Indeed, the US Small Business Administration reports (Opens Overlay) that about half of new small businesses make it to the five-year mark, and only one-third survive 10 years or longer.
For those that beat the odds, passing the baton can be an even bigger challenge than starting the company. To help prepare the next generation and bridge any discord that could develop during a transition, it’s important to work out a concrete succession plan that factors in the challenges unique to family businesses.
Once you move past the first generation, the question of who controls the company and what positions they hold in the hierarchy can be particularly thorny territory. Closely held family businesses are more likely to succeed when all stocks, especially voting shares, are held by family members who work in the business full-time.
Maintaining harmony among family members is critical, especially when money is involved. Provisions should be put into place so that the business can reinvest in itself in good times, and potentially curtail disbursements during lean years. A well-articulated and transparent policy can establish distributions for family members who are active in the business and those who are not.
Above all, an important key to success is to retain the organization’s original entrepreneurial spirit. Complacency is a danger with a multigenerational business, and past success doesn’t guarantee its future. To remain vital, companies must reinvest in themselves.
While sustaining a business of any kind is difficult, the challenge can be met and a legacy can be built—if that’s what you and succeeding generations desire.