Dying is Not a Sound Business Transition Strategy

Family business owners who don’t groom a successor and have a transition plan in place are setting the business and their family up for disaster. We have seen many cases where owners pass away or become seriously ill while they are still running the business, which can put their family, business, and employees at risk. In a recent video from Inc.com, Jessica Johnson, president of Johnson Security Bureau, talks about taking over her family’s third-generation, 50-plus-year-old business amidst her father’s failing health and subsequent death. Her story illustrates the dangers of not having a sound business transition plan in place.

Ms. Johnson took over her family’s business six years ago. “I think I spent three years dealing with lawyers” she said. Why? Her father did not have a will or plan in place for the future of the business. What was an already emotionally difficult time for the owner’s children as they were dealing with his illness and death was compounded by the fact that they now had to run the family business without any real guidance. The day following his funeral, they had to do payroll and keep the business moving forward. As Ms. Johnson said, they had a handful of large customers and 16 employees (and their families) who were depending on the continuity of the business.

As Ms. Johnson highlights, one of the problems that arises in family businesses is that potential successors are often kept in the dark when it comes to the business, including the day-to-day operations and business finances. Ms. Johnson offers some sage advice for business owners, especially owners of family businesses: Find and groom you successor. Spend time to find and engage a young person – whether it is a son, daughter, or someone else. Find someone who you can groom to run your business so they can take your business forward once you’re gone. She and her brother weren’t exposed to the business growing up. This often happens because the owner/parent wants to shield his or her family from the perceived burden of running the business. However, this lack of education, communication, and planning can be detrimental when it comes time to hand over the reins to the business.

The success of Ms. Johnson’s business, despite the huge obstacles they faced, is not typical. Most family business owners just assume their business will simply pass from one generation to the next and continue without any planning or forethought. The reality is that less than 30% of family businesses experience a successful transfer from the first generation to the second and it gets worse with each generational transfer. Countless family businesses have fallen apart or had to be sold because of this lack of planning.  This can result in strained family relationships between those who are and those who are not involved in the day-to-day operations of the business.

Even though Ms. Johnson and her brother were not prepared to take over and run the family business, they realized it was a necessity. She realized when her father died that all the work that her grandparents and her father had done wouldn’t matter if the business failed. It would all be “for naught” if she and her brother didn’t keep it moving forward. With proper ownership transition and succession planning, the process would have been much less painful for the family.

“Nobody wants you to die. Nobody is ready to die. But you want to make the most of what you have. You can’t take your business into the afterlife, so plan for this phase of your business just as you would retirement,” Ms. Johnson added. Even if you don’t plan on transitioning out of your business for years, having a comprehensive plan in place gives you peace of mind, knowing that your business, your future, and your family’s future are secure. Your family harmony, legacy, and financial future depend on making sound business decisions and planning for the future.