Wealth – not always the business – must last generations

The statistics of family business transition are well known: 33 percent make it to the second generation and only 5 percent make it to the third. Rags to riches to rags.

The statistics of family business transition are well known: 33 percent make it to the second generation and only 5 percent make it to the third. Rags to riches to rags.

When they think of legacy, many family owners think of maintaining the business for future generations. But this thinking is probably the No. 1 reason family businesses don’t survive.

The purpose of the business is to create wealth, not jobs, for the family. If the business isn’t generating profits and leadership is not focused on creating business value, a slow death commences, eroding the business’ foundation until all value is gone and family wealth dissipated.

As hard as it is to hear, all businesses have a beginning, middle and end. The goal isn’t to have a business that survives generations, but to have wealth that survives numerous generations.

This wealth can be reinvested to create new businesses and opportunities for the family. This is a true legacy.

So, how do you know when a business has reached its end?

It’s no different for a family business vs. any other business. The markets will tell you.

The focus of the family moves from “maintaining the family business at all costs” to “maintaining our family wealth at all costs” – by focusing on business value.

Has technology changed? Are new competitors entering our space? Do we need to reinvest or innovate?

Is our product at the end of its life cycle? What are we doing strategically to address these challenges?

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