Exit Planning To Avoid Adult Children Owners

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in The Business of Business Finance

According to the Family Firm Institute of Boston, Massachusetts, "nearly 70% of all family firms fail before reaching the 2nd generation, and 88% fail before the 3rd generation; only a little more than 3% of all family enterprises survive to the 4th generation and beyond.

So why would an entrepreneur take on these odds and transfer ownership to their children?  My friend John Warrillow gives several bad reasons here, but my experience tells me there are two  primary reasons.

1)      Ego

Most successful entrepreneurs are successful because they have a strong personality and ego and they do not want their business to fade when they do.  They have an unrealistic vision of their enterprise surviving and thriving into their family history for generations.  Odds are very high it will not survive past their grandchildren.

2)      No buyer for the business

This is the real motivator for inter family transfers; there is no one else capable of buying or taking over the business. 

I am working with a restaurant chain owner (12 locations in the South) now who has owned his company for 30 years and never spent the time to develop a successor or a management team capable of running the business much less buying it.

Like most things in life, advance planning can create many alternatives.  We developed two very effective alternatives for that restaurant owner and helped a trucking company create a structured management buy out of his company who did not have another ligimate buyer.

The key ingredient for both of these businesses…Time.

If you are going to sell you business at some point in the next 3 – 8 years, begin now to develop an exit strategy, at least in the macro sense.  Advanced exit planning will only make the eventual sale of your business more successful and profitable.

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