This article are provided for information purposes only, and are not intended as legal advice.

Succession of a business owner

January 28th, 2010

You still feel healthy but you want to continue the long term success of your company long after you have passed away.   You have children in the business and you want to pass your legacy to your kids, should you?  Too many parents believe that their kids will be as good if not better than they are at operating the business.  Some are, many are not.  Smart business owners look at their kids and determine if they have the right training, are they ready to take over the business, do they need more skills, if they need more skills, how will they learn those skills.  If there are multiple kids in the business, what skills do they all possess.  Is one a better material to become the CEO of the business than the others?


Maybe a better question will be does your child want to take over the business.  Do they even want to be in the  business or are they being forced to do something that they are not interested in?  If you have a large company, the child that you select to be the heir apparent may not be ready to take over the business when you retire.  Should you then look to professional management and continue to have someone mentor your child until they are ready to take over the business.  Too many business owner have their kids operate the business when they are not ready or do not have the skill set to run the business. 


I am aware of a family business where the kids are involved in the operations of the business.  One of the kids has a bad temper, no people skills and is in charge of staff.  Needless to say, the business has a high staff turnover.  Dad, who is involved in the business pretends that there are no problems.  He tolerates the problems created by one of the kids.  Is this good management skills?  Is this the successor of the business?  Remember, the first generation makes the business, the second generation sometimes improves the business and makes it more successful, the third generation often losses the business and if they don’t the fourth generation will have that honor.  This is the typical trend of many family businesses.


Why does this happen?  The first generation probably started with nothing and the kids probably had nothing growing up.  As a result, they could see their parents working hard and could appreciate the work that went into the business.  By the time the second generation takes over, things are going smoothly and they now have the means to provide for their kids, who are the founders grandchildren.  The parents may work long hours and they may spoil their kids, put them in private school, give them expensive gifts etc.  The children never have to work for anything therefore they do not appreciate the value of money.  Everything is provided to them and often they do not have the work ethic that their grandparents had.  If the work ethic is missing, how will they be able to run the business?   They have more than they need in the bank account now, if they lose the business and take too large of risks, they still are well off and can live comfortably.  As a result, many of the third and definitely the fourth generate tend to play hard but not always work hard.  They tend to take large risks trying to expand the business and take the business to new levels.  Often they will do this with debt.  They will keep building the business and taking on more and more debt until the debt becomes so large that they can’t get out from the burden of the debt and the business fails.


Good businessmen appoint the right person for the taking over the business and if they need to, they will sell the business.  Proud parents will leave the business to the children even if they do not have the skill set to operate the business properly.  What type of business owner are you?  What type of succession plan do you have in place – will you use family or the best possible candidate to operate the business after you have gone?

Filed under: Succession — Gary Landa @ 7:29 pm

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