Most successful family-owned businesses are started by talented entrepreneurial-minded individuals. These individuals grow with their businesses and learn many valuable lessons along the way. When they try to fit others into their shoes, they find it to be a tough fit! The second generation may not have the same talents or passion to be successful. Often, they have desires to step out of the family business and into other fields.
Below you will find some key reasons why second generation business owners fail:
- Indifference – Caring about the company leads to success. If the second generation doesn’t care about the company and is indifferent about whether it succeeds or not, you may as well throw in the towel.
- Knowledge – Just because the business is turned over to the second generation doesn’t necessarily mean they are knowledgeable about the company. It’s crucial that the necessary steps have been taken to educate the new owner with the company business model.
- Networking – The new owner needs to follow in the business founders footsteps. The new owner’s lack of networking will lead to failure. He/she needs to take the time to get to know all the customers, employees and referral sources.
- Succession Plan – When the business founders put off their succession planning they are setting up the new owner for failure. A proper business succession plan (i.e. training your successor) cuts down family discord and it allows the founder to determine the best successor for the business.
What necessary steps can businesses take to avoid these traps that can destroy family businesses?
- Second generation business owners must insist on proper training. It’s important to expose them to the company at an early age. No special accommodations should be made. Families are now requiring any child who wants to be involved with the business to earn a university degree and gain experience outside the family business.
- Often times, the family grows more quickly than the business. The business isn’t large enough to employ every family member. It is crucial that family businesses ensure only committed and qualified relatives are allowed to join the firm.
- It’s also important that the new ownership specialize in a different sector of the business (marketing, operations, finance). This way, the next generation gain cross-functional specialties that are imperative to the success of the company.
Consider these steps to make sure your business continues to success with the next generation.
For more information, call LSL CPAs & Business Advisors at 714.569.1000.
*This article originally appeared in the May 2016 Family Businesses issue of the Orange County Business Journal
