Many successful business owners today share the same dream: to be able to leave their business to their son or daughter. Having a child follow in our footsteps and choose the same life’s work as we have is a wonderful thing for a parent, as I well know. My own daughter, Lori, works with me, and it’s great to have the opportunity to watch her achieve goals and help build the company.
Yet when it comes to planning the succession of your business, you must be careful not to let emotions cloud your judgement. Believe it or not, there are significant arguments to be made for why you should not leave your business to
your offspring, no matter how much
you love them.
Statistics show that a second generation
business has only a 53 percent chance of
surviving 10 years, and a third generation
business less than 32 percent,
according to the Institute for Family Owned
Business. That means that nearly
half of all companies passed down
from parent to child end up failing within
a decade.
This article presents some reasons why
your son or daughter should not inherit
your family business.
THE CHILD IS TOO YOUNG
Sometimes it’s a matter of a child simply
being too young to take over the company when you want
or need to transfer ownership.
Take the example of famous restaurateur
Warner LeRoy, owner of the legendary
Russian Tea Room, who died in 2001
and left the business to his 22-year-old
daughter. Just one year later, the fabled
landmark closed its doors forever.
Immediately after LeRoy’s death, the
media made much of the new 22-year-old
CEO. Yet it was likely due to her
very youth and inexperience that the
restaurant struggled and finally closed.
Employees who had been there for
decades lost their jobs, and New York
City lost a bit of its history. Imagine
being in your early 20s and having such
a spectacular failure on your resume.
Would you wish that on your child?
When you’re planning the transition of
your business, you must take into consideration the age and experience of your
offspring. Your son or daughter may be
bright and motivated, but there’s no
substitute for high-level experience.
Working for you during summers off
from high school and college does not
make them qualified to run the whole
company. If you’re ready to step down
but your offspring is still relatively young
and inexperienced, the timing is simply
not right. Either you remain at the helm
for a few more years, or you should consider
making other arrangements for the
succession of your business.
THE CHILD “JUST DOESN’T HAVE IT”
No parent likes to
admit that his own
child lacks aptitude
for something. Yet
when it comes to your business, you
have to be brutally honest. Does your
son or daughter simply lack the talent or
motivation to run your particular company?
Do they lack the required aptitude
for your industry?
Much as you’d like your children to follows
in your footsteps, you can’t force
them to love your business just because
you do. They may have their own
unique talents that they want to explore.
For example, my younger daughter,
Wendy, works in TV production. The
money in her industry is lousy, and I’d
love her to come work for me. But she
loves what she’s doing, and she’s moving
up, getting more responsibility and earning
the respect of her peers. Wendy is
happy, so I’m happy for her.
If you force a child to embrace a business
or industry he just doesn’t have a
knack for, you’re courting trouble. That’s
because he’ll always feel forced into it,
and one day, at the worst possible
moment-like when you’re about to
retire—he’ll wake up, realize he’s not
happy, and quit. That leaves you holding
the bag and scrambling for another
successor.
If your children really want to learn your
business, they’ll ask you. Wendy knows
the door is always open. Sure, I’d love
her to work with me and make some
real money. But I respect her decision to
explore the TV production field. In fact,
she’s learning skills that she could put to
good use if she ever does decide to join
my firm.
WHEN YOUR CHILD WANTS TO LIVE IN
A DIFFERENT GEOGRAPHIC AREA
Your business is in Baltimore but
your son wants to
live in Boca Raton,
Fla. He’ll “telecommute,” he tells you and run the business from the
beach. After all, with the new technology
available today, some CEOs rarely
even have to show up at the office. Or,
he thinks you should up and move the
company down to Florida, where it will
be easier for him to take the reins.
Well, that doesn’t fly with me and it
shouldn’t with you. You’ve spent years
building your business, and your location
is likely a big part of that. You’ve
worked hard to retain a good team of
employees, none of whom want to be
uprooted. Unless there’s a solid business
reason for relocating the company headquarters
and it better be a good one a dramatic move is not a good idea.
Make your child live near the business,
not vice versa or he simply doesn’t
inherit it. If he refuses, then he’s simply
not the right successor for you.
YOUR RELATIONSHIP ISN’T WHAT IT COULD OR SHOULD BE
Much as you hate to
admit it, you may not
have an ideal relationship with your
child. For parents, this is a very sensitive
area, but one that must be addressed.
It could be that you couldn’t spend a lot
of time with your child when he was
young, because you were working so
hard to build your business. Even
though on the surface things may seem
OK, there may be some lingering resentment.
If you had to miss too many soccer
games or school plays because you
were tied up at the office, your child may
still feel a little bitter at times. To him,
the business may represent the many
hours you had to spend away from him
during his childhood.
Or, you may be divorced from your
child’s mother or father, creating an even
more delicate situation. If your child has
always tended to side with your ex, he
may harbor some bad feelings toward
you.
Finally, the two of you may simply be
completely different personalities, and
have difficulty communicating. If any or
all of these are true, giving the business
to your child isn’t going to “solve” the
problem. If the parent-child bond isn’t
strong enough, you could be headed for
disaster.
I plan to be leading my company and
selling insurance until they put me in
the funeral home. Yet we all know that
life is full of surprises, and things don’t
always go as planned. That’s why planning
the succession of your business
should be at the top of your “to-do” list.
They say love is blind, but don’t let emotions
or guilt get in the way of this very
important decision. If there are any reasons,
including those above, why your
son or daughter should not inherit your
family business, then accept it and move
on. It’s your duty to find someone you
can rely upon, such as a key company
executive who knows the ins and outs of
your business as well you do if not better
than you do. When you’re thinking
of handing over your life’s work and
your family’s primary source of
income you need a successor you can
trust.
About the Author
Sid Friedman, CLU, ChFC, RHU and
LUTCF, is one of the country’s most
sought-after speakers on financial planning,
personal motivation, career development
and time management. The author of five highly acclaimed books,
he has spoken before audiences throughout
the world. As president and CEO of
Corporate Financial Services, Sid has
built one of the industry’s most successful
insurance and financial advisory
practices, with a staff of 100 professionals
and offices in Center City Philadelphia.
