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.