While many family-owned businesses have a long-term objective of passing the business on to the next generation, in reality only about 30% of all family-owned businesses successfully make the jump to the next generation.
What's more, only about 15% make it to the third generation, and only about 5% make it to the fourth.
Rodney Jones, Kansas State University Extension specialist and professor in Manhattan, says the reasons most family businesses don't survive the generational jump may be that the younger generation doesn't want to continue in Dad's footsteps. Or the young folks may want to continue but Dad has a hard time giving up control.
“In many other instances, however, it appears to be a lack of understanding of the underlying issues, a failure to communicate and a lack of planning that results in the inability to successfully make the transfer happen,” he says.
Successful transition planning, like business planning in general, is a process rather than an event, he says. “First, take stock of the business to determine current strengths, weaknesses, financial position, etc. Next, spend considerable time with all stakeholders developing a shared vision, objectives and goals for the business and the family members involved. Develop a workable plan to move the business forward and implement the plan. Finally, it's important to constantly monitor progress and, if necessary, modify or improve the plan to keep the business on track to achieving the vision.”
Of those steps, perhaps the most important is open communication between generations and developing a shared vision for the future of the ranch.
“Most of the things we see fail, and I've seen a lot of failures in attempts to pass businesses on, really don't have anything to do with the fact there wasn't an adequate estate plan in place. It has to do with the fact people couldn't get along. You end up with a lot of battles among the family that can eat up a lot of assets in a hurry when you start suing each other.”
Jones says he can't overemphasize the importance of getting everybody on the same page in terms of the vision, unified goals and objectives.
“If that doesn't happen, it really doesn't matter how good the estate plan is or how thick the wallets are,” he says. “It's probably not going to work.”