How to Make a Family Business Last Generations
If you look into the statistics around family businesses, they can be discouraging. According to Family Business Magazine, only 30 percent of family businesses make it to the second generation, and only 13 percent last long enough for the third generation to take over.
But don’t be too alarmed. A generation is a long time, roughly 25 to 30 years, and a lot of businesses don’t make it that long anyway. Of all private businesses started in the year 2006, for example, only 33 percent lasted into their tenth year.
By comparison, family businesses start to look pretty good! In fact, family businesses can offer a lot of advantages that traditional privately-owned businesses don’t have, like a mindset of making the business last to the next generation rather than selling it as soon as it’s appreciated enough.
But making a family business last won’t be easy. If you’ve founded a business that you’d like to see your kids and grandkids take over one day, you need to start thinking very long-term. Here are a few of the things that keep family businesses running.
Shared Long-Term Values
As we mentioned briefly above, one of the advantages that a family business has over its competitors is that the founders tend to think in terms of decades, not quarters. Yes, it’s still important to pay attention to the short-term trends of your industry and your business environment, but you have to keep an eye on the future, too.
That means thinking in broad strokes about what makes your business special. What gets you out of bed in the morning? Why should your business exist among your competition? Why should your business stay in the family instead of selling to the highest bidder? Chances are, whoever founded the business had a problem in mind that they wanted to solve or a community they wanted to serve, and that objective is timeless.
Focusing on the values that drive your business allows you to be flexible with the day-to-day details of how your business operates and interacts with the world. Business environments are fluid — anyone who started working in an office in the 1970s can tell you that — and no business can last 20 to 50 years or more without adapting to the changing times.
Often, the thing that sinks a family business is trying to stick too closely to the previous generations’ vision or ideas, despite the fact that the world has moved on. You might have inherited a business from your mother, who watched the rise of the internet in 1993 and decided it was a fad. Does that mean you should ignore digital marketing and social media now, in 2020? Of course not.
Running a family business means planning for the next generation, and that means making a plan for what happens to your business when you retire. It’s never too early to start planning for the day when someone else takes over your business, because passing it on to your children can be more difficult than you might think.
First, you’ll need to make sure that your children actually want to take over the family business. If they don’t, it might make more sense to pass it to a valued employee instead. You’ll want to get a business valuation so that you know what your business is really worth — not just for your own purposes but for the sake of calculating the taxes that your children might have to pay. And you’ll want to set the business agreement in writing so that there’s no confusion about how the deal will be done. Check out our article on succession planning for more detail.
Talk to First Western
Running a business is tricky enough without adding interpersonal relationships into the mix, but family businesses have their advantages, too — your family will be dedicated to your success and they’ll have your back, no matter what. But no matter how supportive your family and how solid your business, it’s never too early to start making plans for the future.
That’s where First Western Trust Bank can help. We have the experience to examine every aspect and detail of your family business to help you come up with a plan of action for the next month, the next year, and the next decade. Ready to start taking your family business seriously? Schedule an appointment.