Pass the Torch or Blow it Out? Who cares if the family business succeeds?

It’s a chilling thought to most owners of family businesses, but the overwhelming odds are, that not long after the founder dies, the company will close up shop or be sold. Unfortunately, the fate of the business is often decided by the banker and lawyer on the way back from the funeral ‑ about four cars back from the flowers.

Tragically, 70% of family businesses do not make it through the second generation and only 10% make it through the third.

Consider the following facts:

  • 70% of jobs created in Canada are from family businesses.
  • 60% of the GDP comes from family businesses.
  • More than 65% of tax revenues come from family businesses.
  • More than 50% of all charitable contributions come from family businesses.

Given these facts, “Who cares if family businesses succeed?”

Widows, wives, sons, daughters, employees, suppliers, customers, advisors, governments, charitable recipients …and the list goes on. There is life after death and retirement, for someone who matters.

Dr. Léon Danco, in his best selling book “Beyond Survival,” stated, “If family businesses were to disappear, it would be a socio-economic disaster to our way of life.”

If the perpetuation of the family business is so important to a vital society, why is succession so difficult? Why are family businesses such an endangered species?

The preservation a family business is the greatest single challenge facing middle‑aged owners in this country.

The disappearance of the independent business owner would be a social and economic disaster. Not only is it the embodiment of the North American dream, but vital to our economy. Wealth is created by entrepreneurs.

For these reasons I feel that the single most important task of the president of a family‑owned company is to prepare for succession so that the company will survive.

The family business can represent all the hopes and all the dreams, all of the challenges and all of the pain which man is capable of imagining. In order to fulfill the dream, which was built with suffering and sweat… in order to know the payoff of this suffering … one needs to know that what they created will live on after them.

Prior to beginning a plan for succession you should ask questions like:

  • Does the founder want to continue family ownership in the business?
  • Do the children want to become owners?
  • Are the children prepared for ownership/leadership?
  • Will the founder leave the business, or is he/she too attached to consider selling or liquidating?
  • Is the founder’s wealth trapped in the business?

If you identify with these questions, you’re not alone. Many families have faced these complex issues and have discovered there is a process that can lead to a successful succession. In some cases succession is not an option within the family. There are other alternatives for continuation of the business that are worth considering.

You had the dream, ability and the guts to build something from nothing. Do you have the courage to accept the fact that perpetuation is also your responsibility?

Don’t wait until a rewarding challenge becomes an unnecessary crisis. A successful succession can be the founder’s final test of greatness. By preserving your family business, you will create a future for your children, jobs for your community, wealth for yourself and you will leave a legacy instead of a mess.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

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