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Succession planning: How many businesses make it to the next generation?

On Behalf of | Jan 7, 2021 | Business Succession Planning |

Your goal for your company is simple: You want to leave it to your children. You want it to remain a family-owned business. You’re not interested in selling it and putting the money into your estate plan. You want the children to keep running it, both because of your love for the company and because it then becomes an asset that earns them money moving forward.

But is this realistic? Is your business going to survive into the next generation? What steps do you need to take to get there?

By the numbers

Let’s start by looking at the numbers. Reports have analyzed how many family-owned businesses actually get passed down in each successive generation, and this is what they have found:

  • 40% of these businesses make it to the second generation
  • Just 13% make it down to the third generation — your grandchildren
  • Only 3% make it to a fourth generation

Now, there are a lot of factors in play here. For instance, by the fourth generation — the children who are someday born to your grandchildren — maybe there is simply no one left in the family who wants the business. Or, maybe they have used their experience to start their own companies. You also have to consider that not everyone has children, so some businesses end just because there is no next generation.

Your succession planning

What is clear, though, is that the numbers paint a fairly bleak picture. Most companies do not last long, with the majority of them not even making it from a founder to a child.

This does not mean that you can’t pass your company on. It just means that you have to focus on high-level business succession planning as soon as possible. The future of your company may be more fragile than you ever assumed. If you start working hard in advance, you can create a plan that gives you the best possible chance of accomplishing your goals.