Succeeding With Succession (OPINION)

As summer winds down, many of us are in the final days of living with house guests. My home has been no exception, with relatives coming from Canada, Boston, San Jose, California, and points in between. They’ve come with the usual baggage — physical and otherwise — and while the anticipation of their arrival has been sweet, their departure and a return to the normal routine has its own bliss.

In addition to family, we’ve hosted friends this summer, too. On the face of it, a visit from either should be pretty much the same — unused guest rooms are pressed into service, local attractions are seen, meals become larger in both their size and daily significance. Yet all house guests are not created equal, and the family sort is almost always the trickier of the two.

A similar phenomenon exists when the day comes to sell your business, an event that my husband and I help owners with on a regular basis. The process of selling a family-owned business should — in theory and practice — be the same as the sale of any other privately held company.

Alas, the family-owned business tends to face a unique set of challenges when the generation in charge is ready to step down, challenges that simply don’t exist in their non-family counterparts.

As with our own flesh and blood, the family-owned business frequently gets special treatment over the years. Bad behavior is overlooked, or even becomes the status quo. A subpar manager keeps their job simply because he or she is family, old policies remain out of loyalty to previous generations, personal wealth takes priority over reinvestment in future business growth.

Like a visit from relatives, the family-owned business is often infused with a layer of emotional conflict, either hidden or in plain sight. Some of the difficult emotions that can bubble up when a sale is contemplated include guilt, denial and entitlement, all of which can sabotage a good, and lucrative, exit.

Family businesses, like family members, can also get taken for granted. There’s a sense that they will always be there — and always love you — no matter what. The statistics around family-owned businesses tell another story. About 30 percent of family businesses survive into the second generation, while only 12 percent are still viable into the third. Just 3 percent operate into the fourth generation or beyond.

This failure rate is often associated with a lack of succession planning. There are a number of reasons why families fail to plan for business ownership transfers, complacency being just one of them. Another is the fact that — like the proverbial house guest — family-owned businesses have a tendency to stick around too long. There’s a sense that the family business must be kept in the family, like a treasured heirloom. When sentiment trumps business the result can be missed opportunities to grow the business through a sale or acquisition, as well as the chance to let shareholders cash out and move on.

The sale of a business is often a moment of reckoning; when direction, decisions and personalities converge under a microscope. A family business that’s been treated as a business can fare well during the process. A business that’s been treated more like an extended member of the family, on the other hand, can face a tough road to the closing table.

“Family businesses are easy to start, difficult to manage, and nearly impossible to exit,” says Tom Deans, third generation business owner and best-selling author of “Every Family’s Business: 12 Common Sense Questions to Protect Your Wealth.”

With the Baby Boom generation marching into retirement, an estimated 40 percent of U.S. small businesses will be forced to transfer ownership over the next 10 to 15 years. Millions of family-owned businesses will need to make an exit possible for some or all of its shareholders.

A good place to start is to make an honest assessment of the role of the business in the family up to this point. If your business has been given “family” status, perhaps now is a good time to put it in its proper place. 

Barbara Taylor is the co-founder of Allan Taylor & Co., a boutique mergers and acquisition firm in Rogers. She is a regular contributor to Forbes.com and a former New York Times blogger. You can follow her on Twitter @ballantaylor or visit her company website at www.AllanTaylor.co.