CPABC Industry Update Winter 2014 | Page 9

Transitioning Family Businesses By Matthew Wesley Imagine this is the owner of your workplace. She runs the business and her hope is to pass it down to the next generation. She may have taken over the family business, succeeded in her time there, and doesn’t want to repeat the mistakes of the first transition or she may be a founder who recognizes that the upcoming transition is likely to be messy and doesn’t know what to do about it and her family doesn’t want to discuss it. When the topic does come up, the tension is indicative of different perspectives and some strong emotions. She is not alone. The challenges of business succession are well known. According to the Small Business Advancement National Center, over 70% of businesses fail to survive the first generational transition, 90% have disappeared by the second, and 98% are gone by the third. This means that only 2% of family businesses survive for 100 years. The results of this failure are often m e a s u re d i n m i s s e d e c o n o m i c opportunities and fractured families. What could have been a vibrant hub of economic prosperity for the family and the community is lost forever. The Causes of Business Failure What causes these failures is fairly well understood. On the technical side, there is often a failure to plan. Business owners need solid estate plans, governance documents, and transition plans. However, many family businesses fail because the family cannot make these plans work. Besides technical failures of planning, what destroy businesses are human failures of communication, trust, preparation, and alignment. Families fracture and their businesses fail. WINTER 2014 | page 9