Many families dream of the possibility of building a business enterprise that can support and be enjoyed by many generations of the family. But making important and sometimes necessary transitions along the way can be difficult. Many advisers know the best techniques to make those transitions in a tax-efficient and legally beneficial matter, yet it is still notoriously difficult to maintain a family business through succeeding generations.
In fact, most businesses do not make it past two or three generations. “From shirtsleeves to shirtsleeves in three generations” is a well-known saying in the United States that represents this difficulty. There are similar sayings in cultures around the world, suggesting that this unfortunate cycle is a universal human phenomenon.
This cycle must be broken for the good of the entire economy. An estimated 80 to 90 percent of the country’s businesses are family businesses, and an astonishing one-third of Fortune 500 companies are family owned. More than 60 percent of the U.S. gross domestic product comes from family businesses, and they employ more than 60% of the country’s workforce. In other words, the overall U.S. economy needs family businesses to thrive.
So, what keeps a succession plan from being truly “great”? Some best practices have emerged. Here are the top 10 questions every family business should be asking to reach for long-term success.