Successfully Handing Off Your Family Business to the Next Generation
Family businesses are the backbone of the U.S. economy. They help communities flourish, pay taxes and most importantly, they create jobs. But not all of them last.
Have you ever heard of the old cultural proverb, “Going from shirtsleeves to shirtsleeves in three generations?” In China, it’s, “peasant shoes to peasant shoes,” and the British say, “clogs to clogs.” While the wording is different in other parts of the world, the universal meaning stays the same. Wealth gained in one family generation will be lost by the third.
This doesn’t have to happen to you.
According to the Family Business Alliance, More than 30% of family businesses survive into the second generation, 12% remain viable into the third generation, and 3% make it beyond the third generation.
As you can see, family businesses are difficult to sustain and there’s a lot of effort that goes into keeping your business alive and thriving in a steel building. There are many factors on why family businesses fail, it’s hard to pinpoint just one. When asked, many small business owners say it’s a lack of communication.
Let’s look at the issue using a current example. A family business has to start somewhere. Dad, a baby boomer, puts a lot of blood, sweat, and tears into his business and intends to hand it over to his son, a millennial. Because the two grew up in a different time, practices and attitudes are different. There’s an inevitable generational gap with how the business is handled, who is still in charge during the transition, and how each tackles problems etc. Communication is the key to handling the succession of the business. It’s easy to say, “I need to get to know my kid better,” or “Dad is so old-fashioned,” but there’s a responsibility on both sides to ensure continued success.
Here’s some help understanding a younger generation. Millennials share an interesting niche in the U.S. today. Because millennials grew up up during a recession, sometimes they aren’t quick to jump into the workforce like previous generations. But it’s not all bad. Their entrepreneurial spirit is ideal for shaping a business instead of working a traditional role. They have an almost instinctive grasp on technology which might improve on an already solid business foundation. It’s that spirit that puts them in a perfect position to inherit a family business. They just have to want it.
A good first step is to establish a plan for the succession of your company. Involve those who will inherit important roles and talk about how you envision them running the company. Children of small business owners sometimes come with a sense of entitlement or feel obligated to take over a company. Evaluate your heir’s level of commitment in the business and leadership abilities. If you deem him or her worthy to take over, make sure he or she has the proper training or schooling to make financial decisions which will keep the business solid. Make sure they have a passion to continue your work!
Ease the heir apparent(s) into the professional landscape. There’s a good chance you’ve already done this and they’ve had ample time to learn the trade growing up in your steel building. Step back and slowly require more responsibility as each day passes, providing a safety net – just in case. At this stage, understand that it’s OK to stumble. Failure teaches several valuable lessons and will give the next generation an understanding of how to overcome obstacles they may face on their own in the future.
The final phase is to let go of your ‘baby’ when the time comes. You’ve built a business from the ground up, but like everyone, one day you’ll be gone. You can retain equity, stock or just a financial investment in the business but understand you aren’t the one making decisions anymore. It’s difficult to pass the torch but trust that your teaching took hold and your steel building is in good hands.
Armstrong Steel is family owned and operated. It will stay that way for years to come. We too started with shirtsleeves, but we’re never going back.Photo courtesy: thetaxhaven, flazingo_photos