70% of family business transition to the second generation will fail

It’s a well documented fact that about 70% of Canadian family-owned business fail to pass on to the second generation. A meagre 10% move to the third generation and succession rates after that are below 5%.

It’s a tragedy that the life time hard work of great many entrepreneurs will disappear into oblivion. It`s hard to believe that most hard working entrepreneur do not want to build a lasting legacy. Yet, most of them will miserably fail in doing so.
A primary cause of business transition failure is inadequate preparation. Owners often make the mistake of avoiding transition planning until they are ready to retire. A common scenario is that the owner promotes himself as Chairman of the company board and begins spending less time at the office. But they then soon realize that the next generation is not adequately prepared to grow the business and the owner then becomes constantly worried about the future of the company and his own retirement.
The most common reason that owners fail to do their transition planning is fear of disrupting family harmony. As explains Greg Amundson a leading consultant helping business owners with their transition plan, «… what is the point of having a family business if it doesn`t include harmonious relationships among the family members? ». «A business is only a business. You can buy a business. You can sell a business. But, your family is irreplaceable». So « how do you tell your oldest son that he doesn’t have the aptitude or personality to run the business and that his little sister will be the next CEO?».
Statistics show that the majority of business owners have very little in the way of succession plans in place other than a simple financial plan for their estate. There are many reasons why owner avoid succession planning:
• Feel that they are too young to retire and lack belief in the business' ability to generate enough retirement income.
• Refuse to accept the possibility of death or other kinds of exit.
• Lack faith in potential successors and so they put off planning.
• Potential successors in the family may be merely pretending to be interested in succeeding to the leadership role, and therefore are resisting the process.
• Confusing personal wishes with the business' needs. Owners may want a potential successor to take over management, but the candidate may not have the ability or the desire. Sometimes another owner is required to inject fresh vision and leadership.
• The successor preparation process takes some time and money, so some owners economize by postponing such planning.

Sometimes transferring a business to a family member is not the most appropriate strategy. It is important for an entrepreneur to know all the options that are available to him. And the only way to reduce the risk of a business transition failure is to plan for it, a long time in advance.
For most of us succession planning is not a pleasant exercise and it is one we tend to put off until something forces us to do it. The whole process can be facilitated by a consultant who professionally deals with these matters every day. For example The Business Development Bancof Canada ( BDC ), provides such services.
What do you think about family business transition? Do you have a plan in place?