Planning succession in the family-run business.

• Author: Siciliano, Gene

In the following article, a CPA and management consultant identifies the issues that a family business owner may need to address to ensure successful succession. He also provides some remedies to address potential problems that may make the transition difficult.

Family-run companies are in many respects the backbone of American business. They are typically the most stable of small businesses, with a much lower failure rate than other small business models. Some of the largest and most successful companies in America are family owned and operated. However, 70% of family-run businesses don't make it to the second generation; a full 90% never make it to the third generation. These statistics are not new, but they are appalling just the same.

So why the high failure rate? Most experts attribute it to poor succession planning, as if a plan would somehow make it all better. No plan will correct fundamental weaknesses in a business unless its managers recognized and address those weaknesses. These weaknesses prevent many family-owned businesses from realizing much of their real potential.

Not all family-run businesses are fundamentally flawed. However, owners of those that do have problems are often emotionally unwilling to acknowledge them or, having acknowledged them, are unwilling to make the hard decisions necessary to fix them. Although family-run companies have a far better survival rate than the average small business, their survival rate is still pretty dismal given the advantages such businesses typically have, such as loyalty, strong family support systems, management continuity, long training periods for the next wave of managers, love and affection and the like.

Common problems

Here are some of the problems that often occur. If a founder of a family-run business is trying to groom a son or daughter or a spouse as a successor, he or she doesn't need to accept the following list as his or her own. Instead, the founder should simply consider the possibility that some of the following pitfalls may apply to the company:

* A son simply may not be a very smart business person. He may have blindly copied his father's approach over the years without developing the ability to devise and implement his own approach to problem solving. This shortcoming could hamper the effectiveness of the future boss. All the love in the world won't fix this one.

* A daughter may have a management style very different than that used to build the business. She may...