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

Succession planning – how do you know if your kids are qualified to take over the business?

March 17th, 2010

You have worked hard all your life and you have built up a large successful business.  Now you want to slow down and you want your kids to take over the business.  Are they old enough? Are they mature enough?  Do they have the skills to run the business?  Have they been properly trained?  These are all the questions which you need to determine.


Since many businesses fail after one generation retires, should you look hard to determine if you are making the right choice or should you bring in someone to supplement the weaknesses of the kids and be professional managers, the kids can be the chairman of the board and run the business from a higher level but allow someone more seasoned to run the day to day operations?  Unfortunately most entrepreneurs do not believe in this alternative, they put their entire faith in their kids.  Many times, after the parents have passed away, the next generation makes bad decisions.  Recently a large Canadian public company went into corporate reorganization due to the poor decisions made by the second generation.  The company expanded to get bigger and bigger and no debt was ever repaid.  When business started to go down, the debt became overwhelming.


In this case, there were lots of opportunities to sell assets at the peak of the market but egos, greed, whatever the decision, the amount they could get was not enough.  They never sold any assets.  Now that they need to unload assets, they are getting a fraction of the price they could have gotten.   This is a common problem with the second or third generation, they see opportunities to expand but do not see the time to get rid of assets to retrench when things are getting tough.  The decision to grow but never to sell hurts many companies, both private and public.  Sometimes they believe that they are invincible and costly mistakes are made.  no business is invincible. 


If you have children who are not well rounded, will they be able to make good informed decisions or would they run the business with their heart, and not use good business sense?  That will tell you if you made the right decision to have that child run your business after you retire.  If you don’t think that they can run the business, should you think about selling the business?

Filed under: Succession — Gary Landa @ 9:18 am

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