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Kids must earn the right to run the business, but start now

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Nearly 90 percent of all businesses in the U.S. are family businesses. That is a lot of businesses.

Yet the odds of a family business succession are not good – 33 percent make it to the second generation and only 3 percent make it to the third generation.

What's going on? Are the kids that numb?


For the most part, the parents are that numb.

Not on purpose, but they have created a mess, and when pushed into the corner of their retirement, they have run out of time to correct the course.

So what happens? Numerous things, but here are six areas to look for and discuss in your family business and with your family.

If you want any chance to transition your business to your kids, your kids must develop a healthy attitude about money.

One of the biggest problems in generational changes is the loss of entrepreneurism.

What is the key factor missing? The hunger of how to meet payroll on Friday.

If it is just given to you, it is very difficult to teach “getting in the trenches and figuring it out.”

If you want your kids to be successful in the family business, make sure they have a voice in coming into the business. Some of the best ways to make that happen are:

Develop a minimum amount of post high-school education. Some of the best family businesses require graduate degrees to be eligible (not guaranteed) for management positions.

Require the kids to work outside the family business for a minimum of five years before interviewing (not guaranteed) to join the family business. They will get their shins skinned up, figure out how to survive in a company without the family blanket and will bring ideas and innovation back to the family business.

Your last name does not guarantee a job. Any child joining the business must meet or exceed the job requirements.

This is a huge issue in family businesses. It is very difficult for parents to see their children as adults.

They will always be your children, but successful family businesses find a way for the parents to shift this critical relationship so that the children begin to gain respect (from others and themselves), accountability and leadership.

No one is going anywhere if the senior generation hasn't developed a plan for financial independence. The sooner a plan is developed and implemented to create this independence, the faster the succeeding generation likely will step up to run the business.

A generational killer is locking up the senior generation's net worth in the business. Work early to start getting net worth out the business.

Too many family businesses get myopic, trying to keep their business lives private. But this attitude often is the kiss of death.

The best family businesses put nonfamily employees on the management team, hold their leadership teams to annually develop a strategic plan that they are accountable for and put nonfamily members on their boards.

If you are serious about your family business and its legacy, get to work now.

Too many senior generations think, “I have time; I'll take care of it tomorrow.”

Well, you don't have time.

Your kids are making decisions about their future, key employees are making decisions about their future and the markets keep changing – let alone your health or burnout.

Tom Garrity is managing partner of Compass Point Consulting LLC in Bethlehem. He is a certified coach with Gazelles International and a certified exit planning adviser with the Exit Planning Institute. Compass Point provides growth and business transition consulting to small- and medium-sized businesses. He can be reached at 610-336-0514 or tgarrity@compasspt.com.

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