It’s one of the most common issues related to the future of a family-owned business: How do the owners pass the business to their children? Moreover, how do they know if their children will even want to take over the business, let alone make it profitable for the long term?
Parents often treat the company as their baby to be lovingly and carefully passed off to new hands, yet the kids treat the new responsibility as a moment to shout, “Please don’t let me fail!” Why should the kids fear failure? That’s easy: For the same reason the parental owners and founders must be careful in these deals.
Over the next few decades, some $30 trillion in wealth is expected to change hands from aging business owners to their children. That’s a staggering volume of wealth transfer, even with Covid-19 putting a dent into some of it and altering more than a few succession plans. Even though the business landscape may have been forever altered, there’s no doubt that business will, eventually, bounce back.
Owners are not, however, particularly good at succession planning. Surveys have shown that almost half of family-owned businesses don’t have a succession plan, yet 3 out of 4 of those businesses plan to pass ownership to the next generation.
More-sobering numbers still: Only about one-third of all family businesses survive into the second generation, and even fewer survive into the third — and those numbers were the reality before the pandemic.