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What percentage of family businesses make it?

On Behalf of | Nov 1, 2021 | Estate planning

You started a business when you were younger and helped it grow over the decades. It’s your sole source of income. Now you want to leave it to your children.

You know how valuable a business can be as an asset. If they take it over, they have the chance to help it grow even more. They also get an asset that creates income. If you leave them money, they slowly deplete it over time, but the business can provide long-term financial stability.

That said, you may be wondering about the odds that this will work. How many businesses succeed as the next generation takes over?

The harsh truth: Most businesses fail

Unfortunately, the news isn’t good. Studies have found that the majority of businesses (60%) fail in the second generation. In the third generation, the failure rate increases to 90%. If you ever see a company that has made it to that third generation, you know that it is just one out of 10. The other nine are long gone.

What can you do?

If this seems daunting, remember that there are often things you can do to increase the chances of success. For instance, you could bring your heirs into the business now so that you can teach them how to run it, rather than just leaving it to them. You want to do everything in your power not just to create a succession plan, but to make sure they can handle it.

Another important piece of the puzzle is to talk to your heirs while doing this planning. What do they want? What do they expect? What skills do they have? Never assume anything — even that they want the company. Gather as much information as you can and allow them to give you feedback so that you create a plan that actually works for your family.

Setting it up

Once you’re ready to begin succession planning, then you need to start considering all of your legal options carefully. The more you do to make this plan bulletproof, the better the odds that your business can be one that survives.