Family Owned Small Business Succession Planning

Small businesses make up 99.7% of all U.S. employer firms according to the Small Business Administration. Greater than 80% of all enterprise in the U.S. is family-owned. Of the Fortune 500, 35% is family-controlled.

When surveyed, the vast majority of all small business owners believe they will transfer control and ownership of their business within their family (siblings, children, or extended family) when the time comes. According to the Harvard Business Review, there is a 70% failure rate when transitioning to the second generation. Successful second generation businesses are statistically worse off – as the failure rate rises to 88% when transitioning from the second to third generation.

The odds of success are compounded against you as time progresses – which makes firms like S.C. Johnson Wax that much more impressive as they are currently in their fifth successful generation.

Here are three best practices thriving successful multi-generational businesses are employing:

1. “Experience before Entitlement” – the majority of successful next-generation business transitions push children to get outside experience before coming home to roost in the family business. Real-world experience and accountability to a non-family boss are difficult, if not impossible, to fabricate inside the business

2. “Bloodline Blind Beneficiaries” – Many small businesses have multiple members of the next generation coming up through the ranks. Siblings and cousins frequently vie for the same position. Often, the controlling member will select and promote according to their direct bloodline, ignoring more qualified or better suited indirect family members. Successful family businesses instead hire outside coaches, mentors and consultants for a qualified unbiased opinion.

3. “Growth Game” – family-owned businesses often employ family members first and generate revenue second. As families and their subsequent workforce grows, this can create a cash flow dilemma of epic proportions. Having family members step into defined roles and adhering to a system of accountability is vital to success.