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Why do most family-owned businesses fail?

On Behalf of | Feb 22, 2022 | Estate Planning

Even when the family business lasts through the first generation, the vast majority fail by the third generation. Many of them don’t even make it through the second generation. This means that, if you start a business and then try to leave it to your children, the odds are seriously against them.

This is concerning in the United States, where small businesses and family-owned businesses are such a staple. They are a major part of the economy and many people dream of owning their own businesses. They want to pass them down to their children when they retire or pass away. Understanding why these businesses fail may help you set yours up for success.

There’s no succession plan in place

One major reason for this type of failure is when the owner doesn’t create a succession plan as part of their estate planning process. This means that the children have no direction and no defined roles. They may get into disputes about who’s supposed to run the business or how things should be done. It may have been easy to keep the business going when you were the sole owner, but can your family do that after you are gone?

The children have different visions

In some cases, children just want different things for the company. One child may want to just hold the course and keep it going steady, while another wants to expand and spread into international sales. Still a third wants to sell the business and just take their money out of it. When they all have different goals that they’re working toward, that can really hinder the company.

The children don’t have your skills

Another thing to consider is that you don’t have to leave your business to your kids. Maybe they don’t have the skills or abilities to run it the way you do. Maybe they could do it, but they just lack the drive and motivation that you have, two things that made your company so successful. It may be wise to talk with them, determine how they feel and then think about other options – such as selling to a third party and simply leaving the children the proceeds from that sale.

No matter what you decide to do, you can see how important it is to do proper planning in advance. Make sure you know about all of the legal options at your disposal.