4 Lessons Learned: Resources

Reasons Why Family Business Transition Planning is Important

Studies have shown that more than 70% of the businesses fail to transition to the next generation. This is as a result of lack or ignorance of planning for the succession. It has become a very sensitive issue that has caused sibling rivalry, political power plays and tax hurdles. A previous preparation for the family business transition will ensure such issues are avoided. Despite this, there are many other reasons that lead to family business succession failure.

According to Fager and McKinney’s 2007 family business planning book the main reasons for neglecting family business transition planning are categorised severally. Firstly, is the good times high. When the times are good, people tend to ignore the difficult and hard times. Running the business is deemed to be much better when the person is still present no when they have left.

The business experiences problems like theft by employees, a broken plant and mistakes in accounting. These problems must be resolved. The company will have minimal chances of being successful as the long term ramification of not planning succession. Immortality complex is the other reason. This means that most business people do not want to come to terms with death or sickness. Successful business people get influenced by the immortality complex. People neglect planning for business transition earlier on because of employee and family feuds.

When the family members involve their emotions or political views, the business will not be handled properly as it should. The preparation for business transition is ignored by people due to these factors. There are those who still want to hold on to their businesses. Entrepreneurs usually feel they have accomplished a lot when they still hold on to their bisinesses. Most entrepreneurs feel they cannot let go of their businesses because of the time and effort they put in. People also ask themselves who will manage the business if they have left.

Tax hurdles can be difficult to understand when selling or handing over the business to the next generation. The tax problems are then swept under the rug so that more pressing issues are dealt with. People tend to lack faith in the successor and this is one of the reasons why succession planning is neglected. The business can get a good successor who can move the business to greater heights. Despite the above, the successor is normally faced with skepticism. Succession planning is not done because people want to avoid such scenarios. The failure rate in business transition is linked to the ignorance of succession planning. The effects of not attending to these issues in the short term will escalate in the long term.

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