Many owners and entrepreneurs wish to sell or gift their company to a family member when it’s time for a transition. That can leave a substantial legacy and a continuation of the family’s values and accomplishments. Nevertheless, less than one-third of all family-owned business are passed on to the second generation and less than 10% of family-owned businesses are transferred to a third generation.
These surprising results are caused by the intersection of two powerful dynamics: the owner exiting from a business that he or she built, combined with often complex intra-family relationships. In short, successful family business transfers can be difficult and require careful planning and execution to be successful according to these criteria:
- The owner must gain financial independence and security apart from the business.
- The next generation of owner(s) must gain ownership and operational control of the business.
- The business must continue to prosper after the founder leaves.
- Participating family members must feel like it’s a reasonable distribution of wealth and control.
- Key employees and managers must believe it’s a rational solution for them and the business.