Why Don’t Most Businesses Succeed in the Long Term?

Closely-held businesses are the backbone of America. About 95 percent of all businesses in America are family or privately held. A 2014 study revealed that there are more than 27 million closely held businesses in the United States, and they account for between 70 and 80 percent of all new jobs. Closely held businesses contribute more than half of our Gross National Product. Yet historically, very few survive beyond the tenure of the founding owner.

Why? The answer is simple: No plan.

Creating a succession plan requires flexibility and patience. So start your decision-making process now — before you’re forced to.

There are two events that can disrupt a business:

1) Death or disability of an owner. Every business, no matter how small, should have a plan in place from Day 1 to cover the death or incapacity of any individual whose presence is necessary to make the business function.

2) Retirement of an owner. Proper planning can ensure the continuation of the business and avoid conflict between the remaining owners and their heirs. We have two fundamental issues to resolve. The first is ownership transfer, and the second is management succession. Let’s look at the questions that need to be asked and answered.

First, ownership transfer

Who are the “key” players? Has ownership been promised to anyone other than the current owners? Which family members are currently active in the business? What is their commitment to the business? Has a promise been made about who will succeed to control? Are there family members not involved in the business who want in?

Second, management succession

What type of continuation plan? Pass it to family? Sell to outsiders? Liquidate the assets? How much is the business worth? How will it be valued in the future? How will the plan pay?

Other important questions

Is there a long-term business plan? Why is the business profitable? What are its weaknesses? What is the profitability of the business if you aren’t here to lead it? How will the business’s creditors react if you die or become disabled?

So what do you do? Make sure to check in next week for the answer!

Written by RLO Training