Reasons Why Family Business Transition Planning is Important
Research has proven that over 70% of the businesses do not get handed over to the next generation. This is because of a lack or ignorance of preparing for the succession. The delicate nature of this issue has resulted to sibling rivalry, tax hurdles and political power plays. 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. Good times make people not to pay attention to the difficult and trying times. Running the business is deemed to be much better when the person is still present no when they have left.
There are some difficulties that businesses face such as mistakes in accounting, a broken plant and theft by employees. A solution needs to be found for such issues. The company will have minimal chances of being successful as the long term ramification of not planning succession. Immortality complex is the other reason. Death or sickness are the events that people do not want to be mindful of. This negatively impacts successful entrepreneurs. Family and employee disagreements ate the other reason why people avoid planning for business transition.
Family members can get emotional or political and this can lead to mismanagement of the business. These issues make people to even fear planning for the future events. Sone people are not ready to leave behind their businesses. Most entrepreneurs feel they have reached greater heights. The time and sweat that was invested in the business makes the entrepreneur feel like they should still hold on to the business. Business people always wonder who will be in charge of the company if they 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. Another thing that leads to the ignorance of succession planning is the wavering faith in the successor. Despite this, the business may have a reputable successor who can make the business more successful. Even though the above is possible, people tend to have worries about the successor. 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. Ignoring these issues will be comfortable on the short term, the long terms effects are adverse.