Harvard Business Review reported that close to 70 percent of family-owned businesses fail or get sold to a third party before a second generation owner gets a chance to take the proverbial reigns. And only around 10 percent of family-owned businesses remain active, privately held companies for a third-generation-owner to lead, according to HBR.org.
If you own a small business, you may be asking yourself, “what steps can I take to protect my business and ensure it continues to thrive when I pass on?” Well, one of the most important steps you can take is being proactive and developing a detailed succession plan.In fact, data shows that businesses with a succession plan in place enjoy higher rates of longevity and continued success, compared to businesses that do not. Despite the importance of succession planning, only 16 percent of family-run companies have a succession plan in place, according to a survey conducted by Price water house Coopers. Hence, why so many small businesses wind up failing after the original owner passes away or retires.
Effective Succession Planning -Avoiding Pitfalls
A position within your company should never be viewed as an entitlement for a loved one. Additionally, if a family member expresses interest in joining the company, you need to make sure they do not receive any special treatment or accommodation. An emerging best practice for family businesses is to require any family member interested in a position within your company to meet the following prerequisites:
- Attain a degree in a relevant field such as business administration, business management, economics, and statistical analysis, to the extent applicable.
- Professional experience with another company outside of the family business.
- Require your relative to apply for open positions where they are being compared and contrasted with other viable applicants.
Appointing and Promoting Mentors
In order to improve the odds of your business to continue to succeed,steps should be taken to minimize the amount of time that your familial employee spend working for other relatives. Why? Because the inter-family dynamics invariably impact the ability to provide constructive feedback and may hinder the family member/employee from growing and developing the necessary skills to assume to a leadership position down the line.
A new protocol being implemented by many companies is to assign an experienced non-familial employee to serve as a mentor to the young family member who has joined the company and is being trainedfor a managerial or other leadership position. The non-familial mentor will be in a better position to provide the objective performance evaluations and constructive feedback.
Need Help with Crafting an Effective Succession Plan for Your Business? Contact an Experienced Business Lawyer in Los Angeles Today
The high failure rates of family-run businesses may seem unavoidable, but they are not. The risks can be mitigated or outright eliminated when you have an effective succession plan in place. To get assistance with developing an effective succession plan, contact the highly experienced and reputable business lawyer in Los Angeles, AfshinHakim of Hakim Law Group at (310) 993-2203 or for further information please visit www.HakimLawGroup.com.