Why your children may not want to take over the family business

5 reasons only 30 percent of family businesses survive to a second generation

Cindy Luckman

Family firms account for two-thirds of all businesses around the world, according to a study by the Harvard Business School. In the U.S., about 90 percent of all U.S. businesses are family-owned or controlled by a family. Many entrepreneurs start a family business as a way to build familial wealth and their legacy, and statistics from the Family Business Institute show that 88 percent of family business owners believe their family will control the business for the next five years. Yet, only 30 percent of family businesses survive to the second generation and only 12 percent continue into a third.

Many factors contribute to the difficulty of succession, one of which is a lack of interest from children in taking over the family business. Business owners may envision their children taking over, growing the business to new heights and building an even stronger legacy for future generations, but it often doesn’t occur to them that this course does not appeal to their children. Why wouldn’t a business owner’s children want to take over the family business? Here are a few reasons:

1. They aren’t prepared
Running a business requires leadership, skills and confidence. It is important to include your children in running the business in the early years so that they develop skills and a deep understanding of all facets of the business. Second-generation entrepreneurs may find the increase in responsibility from working in the business to being the owner intimidating. For this reason, some encourage their children to work for other companies to learn how to be an employee outside of the constraints the family dynamic can create. Others give their children increased levels of responsibility in the business over time and provide exposure to various departments to develop the skills needed to run the entire business successfully.

2. It doesn’t look fun
Basketball courts, doggy daycares and five-star cafeterias are some of the perks smaller, family-run businesses may not be able to provide employees. Benefits like these may appeal to members of the younger generation, who seek greater rewards for the long hours owning and running a business requires. If you are a workaholic business owner who has a difficult time taking vacations or being able to shut down during holidays, this may turn off potential successors, who may have different views of the work environment, culture and work-life balance. Also, children who grow up in a family business are often exposed to work-related stress as part of life at home. Issues with money, employees, family members and partners are magnified in a family business setting, so it is important to exemplify balance and a healthy working lifestyle.

3. Autonomy
The saying that parents are parents all the time also applies in a family business. Some parents stay too long in a business and show apprehension in turning over the reins. Children may fear that parents will retain control and inhibit creativity or necessary changes. If parents are unable to relinquish control, some children will choose a different direction to avoid the stress and family conflict. Consistently showing your children you are constantly re-investing in the business and always remain open to ideas on how to stay relevant can be a key component in a successful transition.

4. Burden of responsibility
Following in parents’ footsteps is not automatically safe or convenient. Technology and the internet have increased the pool of competition for businesses. This may complicate succession and pose challenges to children poised to inherit the family business, creating a burden of responsibility for long-term success. There is no guarantee that the business will continue to grow and succeed after it’s handed over.

5. Lack of passion
Children grow up with their own passions, skills and desires for their careers. It could be that what was a dream business for the business owner is not the vision the children have for themselves. It is vital to have an open dialogue with your children about their career paths, so that if running the business does not fit into their plans, you can research alternative options for succession.

Building a business and passing the legacy on to your children can be rewarding. It is important to have a business transition plan in the early stages and to consult with financial, legal and tax advisors who can help you and your children decide the best time and the best way to pass on the business.

Cindy Luckman is senior vice president, managing director for The Private Client Reserve of U.S. Bank in Vancouver.

Deposit products offered by U.S. Bank National Association. Member FDIC, Equal Housing Lender. Credit products offered by U.S. Bank National Association and subject to normal credit approval. This information represents the opinion of U.S. Bank and is not intended to be a forecast of future events or a guarantee of future results.

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