As research has shown, over 70 percent of family businesses fail to successfully transition to the next generation. Part of this tendency can be explained through a general lack or unwillingness to plan for succession. Obviously, it’s a sensitive issue that can easily escalate into sibling rivalries, political power plays and tax hurdles. That, however, is exactly why it needs to be well planned and well communicated. Unfortunately, there are many reasons why the succession planning process is still neglected. Drawing on findings from Fager and McKinney’s 2007 family business planning book, the common reasons for neglecting succession planning can be broken into seven overarching categories.
1. A “Good Times High” – When things are going well, most people have a tendency to ignore difficult and pressing issues. Clearly, it’s more pleasant to think about maintaining success while one is still in control than trying to ensure it after one is gone.
2. More Pressing Issues – Businesses firefight every day: the plant is broken, employees have been stealing, the accountants found mistakes. While these short-term issues must be sorted, the long-term implications of ignoring succession planning will most definitely cripple the company’s chances of success.
3. Immortality Complex – An immortality complex is an often documented downside to successful entrepreneurs. It is difficult to face the reality of sickness or death; most people just ignore it.
4. Employee and Family Feud Fears – Succession can easily become emotional and overly political-a veritable land-grab if the situation is mismanaged. Because of these dangers, many incumbents choose to ignore the process all together instead of managing for eventualities.
5. Difficulty Leaving the Business – Entrepreneurs should be proud of what they’ve built. Those years of sweat and hard work, however, also make it difficult to even think about leaving it all behind. Furthermore, many ask themselves, “what will I do when I’m not running this place anymore?”
6. Tax Hurdles – Tax issues are complex and confusing when it comes to handing over or selling a family business to the next generation. Therefore, they’re often swept under the rug to deal with more “urgent” problems.
7. Faith in the Successor – While the successor may be able to take the business to new heights, there is always in air of uncertainty in such transitions. This unpleasant realization causes many incumbents to merely ignore the succession planning process.
As its failure rate highlights, family business succession planning is an often-ignored subject. While that may be more comfortable for the short-term, the long-term ramifications of ignoring the process are great. The next time you think about putting off succession planning for your family business, keep in mind the long-term consequences you’re creating for your family, your business and your employees.