For many entrepreneurs, a family business they’ve built is the inheritance they hope to leave their offspring. However, these dedicated individuals may not anticipate that they might face unique challenges regarding continuity when the time comes.
Among the most pressing issues is the assumption that adult children will naturally inherit the same passion for the business as their parents. Unfortunately, this is not always the case. As such, a business can be left vulnerable to extinction when the next generation lacks interest or capability. This is where a well-thought-out contingency plan in a company’s succession strategy becomes invaluable.
Succession and the next generation
Succession planning is a critical component in enterprise management that helps ensure the longevity of a family business. It’s natural for parents to assume their children will take over the reins. However, modern realities show that adult children may have:
- Different career aspirations
- No interest or passion for the family business
- A preference for different lifestyles that conflict with running the business
Research has revealed that only 30% of family businesses make it to the second generation, and this figure drops to 12% for the third generation. These statistics should incentivize entrepreneurs to establish an actionable succession plan that has a contingency.
Accommodating scenarios where the next generation is unwilling or unprepared to take over can help ensure the continuity of the family business. The failure to address this possibility can leave the business rudderless when it most needs direction.
The role of a contingency plan in succession planning
Having a contingency plan allows entrepreneurs to have a safety net that anticipates and addresses potential hurdles that may derail the transition process. The contingency helps ensure the business remains operational and profitable even if the original succession plan falls apart.
If adult children are not interested in taking over the business, a contingency plan should outline alternative leadership paths. This may include appointing a trusted non-family member from within the company, such as a long-standing manager with the proper skill set. These leaders can provide stability while upholding the business’s core values and culture.
Family businesses are often built on legacies, but those legacies can crumble without proper foresight. Solely relying on the next generation to take over is a gamble that could lead to business extinction. A contingency plan within a succession strategy can provide a roadmap for addressing this risk. With dedicated legal guidance, entrepreneurs can help ensure that their family business can thrive regardless of the next generation’s decisions.