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We Don't Have a Successor

Dear Advisor: 

I’m a second-generation owner of my family business. I have two college-age children who don’t seem to be interested in taking it over. I’d like to retire soon, and I don’t want to see the business go out of the family, but I also don’t want to work forever in the hope that one of them will come around. Any suggestions?

This is a classic family business scenario bounded by assumptions and timing! Family businesses are typically ruled by assumptions. You and your children, as well as other family members and nonfamily employees, all have assumptions regarding the future of the business. You assume your children are not interested in taking over the business, but have you asked them? Do you communicate your passion about the family business? Have you communicated your desire to keep the business in the family? At home, do you depict the family business as a positive, rewarding, and fulfilling experience? If you answered no to even one of these questions, then you have a great deal of work to do in accomplishing your goals. In a family business, we must fight through our assumptions by clearly communicating our intentions and discussing any issues in relation to the business and the family. A family business should regularly talk about the state of the business and the family as well as the goals and ideas of the participants. If we do so, we are more likely to eliminate these assumptions and begin to develop a plan.

This leads to the timing issue, which can only be addressed by developing and maintaining a comprehensive multigenerational succession plan. A succession plan is a written document that not only details the expectations of the entering generation but also clearly defines the roles of the exiting generation. The succession plan is perhaps the most critical part of a family business not only because of what it contains, but, more important, because it changes the culture of the family enterprise by requiring family members to communicate as business partners instead of simply family or management.

As for the specifics of your situation, it sounds as though you are close to retirement age and I will assume that your children are in their early 20s. Based on my experience, your children are probably not ready to take over your business soon or even in the next few years. In fact, they might not be ready for another 10 years or more. We know from best practices of family businesses that the next generation will probably not be ready until their middle 30s because they need to gain the necessary experience, knowledge, and confidence to run a modern professional family business. To rush them now into the business without the requisite experience is a certain recipe for failure. It would be beneficial to develop a detailed strategy for the next generation so they can bring value to the business. This should include having them get outside work experience so that they can learn and grow elsewhere. If you are serious about retiring soon, then perhaps a nonfamily CEO could bridge the gap until the children are ready to take on leadership roles, if that is a path that ends up fitting with their interests and experience. In either case, you should remember that succession is a process that can take up to a decade to complete and the first step on this journey is ensuring the family has a frank discussion about their hopes and dreams for the future of this business. Armed with this understanding, concrete and realistic plans can begin to be developed.




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