Did you know? There are 28.8 million small businesses in America and 19% are owned by families. What’s more, these family-owned businesses are not just mom-and-pop ventures or husband and wife teams. They employ 60% of the US workforce and create 78% of all new jobs, while generating 64% of the US GDP.
However, small businesses often face obstacles when considering their future. Many owners dream of passing their business down to the next generation but in reality a significant portion of businesses fail to transition to even second generation ownership. If you are a small business owner without children or a succession plan in place, then you may wonder: How will it last? And what proactive steps can I take to ensure my business survives past the next generation?
The Stats
Family businesses face unique challenges and considerations when creating an enduring legacy. While family-owned enterprises form the backbone of the U.S. economy, statistics show that only about 30% of family businesses survive into second generation ownership. This number decreases to just 12% for third generation ownership.
Transitioning a family business can be difficult for a variety of reasons. The most common include:
- poor communication between generations;
- poor training and mentoring;
- next generation lacks experience, expertise or confidence; and
- power struggles or favoritism.
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One major reason behind these family business stats is the decision to sell the business, which is influenced by both family and shifting market dynamics. Other reasons why family businesses get sold can be personal issues, the need for cash among shareholders, attractive purchase offers, or family disputes. However, selling a family business can deeply affect the family’s connection to what often represents their identity. It’s a careful decision that involves weighing financial, emotional, and strategic factors.
Nonetheless, despite the low third generation survival rate, there are many legacy businesses that beat the odds. Successful family businesses create a culture of collaboration and support within the family and the business, establishing clear lines of communication and creating a succession plan that clearly outlines roles, responsibilities, and timelines for the transition of leadership. This culture is anchored by strong governance, a clear future vision, and strong next generation leaders. For a family to thrive past the next generation, they must plan with purpose, adapt, and evolve.
The Future of the Business You Started
Passing your business down to the second, thirde, or even fourth generation is a testament to its enduring strength and resilience. However, proper succession isn’t just a stroke of good luck; it’s the result of deliberate succession planning solutions. Without a robust succession plan, even the most successful family businesses may lose what they have created. The key is to plan with precision, act with intention, and pave the way for a future that honors the past while embracing the possibilities ahead.
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