Reasons why family businesses fail

Many businesses are owned and controlled by families. However, not all family businesses survive into the second generation because the parties involved don't know how to balance the needs between ownership, family and business, according to

Following are some reasons why family businesses struggle:
  • Poor succession planning—A PricewaterhouseCoopers survey shows half of family businesses sampled did not have a succession plan prepared; only half of those who had a plan had designated a specific person to take over the business. Succession planning can require various stages, and it is important to create a "business road map."
  • Lack of trusted advisers—Although lawyers, accountants, etc., have useful technical skills, many need a more sophisticated level of understanding regarding family businesses and their challenges. It is important to have trusted advisers who can meet the criteria.
  • Family conflict—Loyalty toward the family business is fostered by mutual support among relatives. A party outside the family often is needed to help manage conflict.
  • Different visions between generations—Conflict between different generations can hinder the business' growth, especially if the disagreement stems from different core values and missions.
  • Governance challenges—Family businesses require corporate oversight, as well as family and shareholder governance infrastructure. Meetings, councils or assemblies are important to communicate and share information.
  • Exclusion of family members outside the business—Every family member has an investment in the business and the family's overall assets. It is important to have a forum outside of business for family and shareholders to handle issues.
  • Unprepared next generation leaders—The next generation should not instantly be placed in top positions. Successors should learn all aspects of the business before advancing.
  • Poor strategic planning—Successful planning creates motivation that can sustain the family and business through trials they may face.
  • Not using their "familiness" advantage—"Familiness" refers to the unique resources in a family business. Identifying family with a business can help a firm promote a brand of security, loyalty and commitment.
  • Fundamental business principles are not applicable—Traditional business education does not necessarily translate to a family business or meet its complex demands. Main issues such as family dynamics and succession planning often are overlooked in MBA programs or business degrees. Families should find specialized education in the family business field.

Date : 10/30/2012