Business Legacy: Why Handing the Company to Your Children Often Does Not Work

Many business owners dream of passing on their company to their children as a legacy for future generations. It seems like a noble idea, but the reality is that the vast majority of family businesses don’t survive beyond the first or second generation.

According to the Family Business Institute, only 30% of family businesses survive into the second generation, and a mere 12% make it to the third.

So why does this happen? Why do so many family businesses fail when passed down to the next generation?

One of the main reasons is that the children may not have the same passion, vision, or work ethic as the founder. Often, the founder has poured their heart and soul into the business, sacrificing time, money, and personal relationships to make it successful. They have a deep understanding of the industry and the market, and they have built relationships with customers, suppliers, and employees over the years. Their children may not have the same level of commitment or expertise, and they may lack the experience and skills to take the business to the next level.

Another issue is the emotional attachment that founders may have to their business. They may see the company as their legacy, their baby, and their life’s work. They may have a hard time letting go of control and trusting their children to run the business their way. This can create tension, conflict, and resentment between the generations, and it can undermine the success of the business.

In addition, family dynamics can complicate matters even further. Sibling rivalry, power struggles, and personal conflicts can disrupt the smooth operation of the business and damage family relationships. Parents may also have different expectations and goals for their children, which may not align with the needs and desires of the next generation.

So what can business owners do to avoid these pitfalls and ensure the success of their business in the long run?

One solution is to plan ahead and start grooming the next generation early on. This means involving them in the business from a young age, exposing them to different aspects of the industry, and providing them with the education, training, and mentorship they need to succeed. It also means setting clear expectations and boundaries, communicating openly and honestly, and building trust and respect between the generations.

This relies on your children having a desire to take over the business, most simply do not!

Another option is to consider selling the business to an outside party, such as a strategic buyer or a private equity firm. This can provide the founder with a liquidity event and enable them to diversify their wealth, while also ensuring the continued success of the business. It can also offer new opportunities for growth, innovation, and expansion, and provide the employees with more resources, support, and stability.

In conclusion, passing on a business to your children as a legacy may seem like a romantic idea, but it’s not always the best course of action. Business owners need to be realistic about their children’s capabilities, interests, and goals, and plan accordingly. They also need to recognize their own emotional attachment to the business and be willing to let go when the time is right. By taking these steps, business owners can increase the chances of their company’s success and leave a lasting legacy for future generations.