Transferring Management in the
Know your business,
your family, and the roles and responsibilities of each
to be among the third of family businesses that survive
The family business is a vital force in the American
economy. About 90 percent of all U.S. businesses are
family owned or controlled. They range in size from the
traditional small business to a third of Fortune 500
firms. Family businesses generate about half of the
country’s Gross National Product and half of the total
The American economy depends heavily on the continuity
and success of the family business. It is unfortunate,
even alarming, that such a vital force has such a poor
survival rate. Less than one-third of family businesses
survive the transition from first to second generation
ownership. Of those that do, about half do not survive
the transition from second to third generation.
At any given time, 40 percent of U.S. businesses are
facing the transfer of ownership issue. Founders are
trying to decide what to do. Options are few, and they
include closing the doors, selling to an outsider or
employee, retaining ownership but hiring outside
management, or retaining family ownership and management
To be one of the few family businesses that survive
transfer of ownership requires a good understanding of
your business and your family. Four basic reasons
account for the failure of family firms to transfer the
business from generation to generation successfully:
- Lack of viability of the business.
- Lack of planning.
- Little desire on the owner’s part to transfer the
- Reluctance of offspring to join the firm.
These factors, alone or in combination, make
transferring a family business difficult, if not
impossible. The primary cause for failure, however, is
the lack of planning. With the right plans in place, the
business, in most cases, will be able to remain healthy.
Issues in the Family
The list below contains the issues that most family
- Participation – who
can participate in the family business and under what
- Leadership and
ownership – how to prepare the next generation to
assume responsibility for the business.
- Letting go – how to
help the entrepreneur let go of the family business.
- Liquidity and estate
- Attracting and
retaining non-family executives.
- Compensation of
family members – equality versus merit.
- Successors – who
chooses and how to choose among successors.
- Strengthening family
Planning for the
Four plans make up the transition process. By
implementing these plans, you will ensure a better
chance of the successful transfer of your business
within the family hierarchy.
A strategic plan for the business will allow each
generation an opportunity to chart a course for the
firm. Setting business goals as a family will ensure
that everyone has a clear picture of the company’s
The family strategic plan is needed to maintain a
healthy, viable business. This plan establishes policies
for the family’s role in the business. For example, it
may include an entry and exit policy that outlines the
criteria for family members working in the business.
A succession plan will ease the founding or
current generation’s concerns about transferring the
firm. It outlines how succession will occur and how to
know when the successor is ready.
An estate plan is critical for the family and the
business. Without it, you will pay higher estate taxes
than necessary. Taking the time to develop an estate
plan ensures that your estate goes primarily to your
heirs rather than to taxes.
This abbreviated article was taken from a more
in-depth article from the Small Business Administration
(SBA) website. We recommend you read the entire article
by going to www.sba.gov
– small business planner – exit strategy – transfer