Most businesses in the U.S.—in the world, for that matter—are family businesses.
Small, family-owned businesses are the engine of growth and job creation in this country. Therefore, it’s in everyone’s best interest to see them thrive.
Unfortunately, about 70% not only don’t thrive—they don’t survive past the first generation! Fully 95% fail to make it beyond the second generation.
This failure of family-owned businesses to succeed beyond the first generation is often a money thing. It involves a shortage of dollars.
Consultant Russ Allen Prince conducted a study of 749 heirs of failed family businesses. He found that family business failure is more often associated with inadequate estate planning than poor succession planning.
In other words, he argues that it’s often more of a money problem than a management issue.
He’s got a point. Every savvy business person knows that a thriving business can go under when there’s a lack of cash. In the same way that if you cut off the oxygen flow of a healthy person, you suddenly have a dead person…if you cut off the cash flow of a vibrant family-owned business, you’ll soon have a family business failure.
The usual tools to overcome the dollar crunch that occurs at succession time are:
- Properly drafted legal documents
- Life insurance (Since death usually comes at the most inconvenient time, life insurance is often key to making small business transitions secure.)
But even when the “dollar” hurdle is successfully crossed, there’s often a second problem—direction.
Linda Davis Taylor, an advisor to family businesses, makes this point by asking this question, “On a voyage over turbulent waters, should you build a better boat or train a better captain?”
Davis encourages family business owners to see their wealth in four different forms: human capital, intellectual capital, social capital, and financial capital.
If you’re serious about seeing your family business prosper under the leadership of the next generation, you’ve got to focus on the human capital.
Ask yourself one question: If I devoted the same amount of time, energy and attention to my business operations as I’m spending in developing the next owner(s) of my business (i.e., your children or heirs), how successful would my business be?
Yes, yes, I know that being a business owner requires you to wear a number of hats. You have a lot of demands on your energy and attention—and not a lot of time.
But can you imagine having a machine that’s central to your business’s success, and totally ignoring the maintenance of that machine?
Don’t ignore the development and training of the next generation of your business’s owners. When you fail to plan, you plan for failure.
Speaking of planning, I bet you’ve got a retirement portfolio. What’s your plan for turning those “nest egg” assets into monthly living expenses once you stop drawing a paycheck? Do you have one?
If you do, does that plan really align with your “financial personality”? If not, I’ve got a free gift for you. Email me at firstname.lastname@example.org and I’ll send you a link to take the RISA® (Retirement Income Style Awareness®) Profile. There’s no charge. It only takes a few minutes, and it can save you LOTS of worry.
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