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. It has become a very sensitive issue that has caused sibling rivalry, political power plays and tax hurdles. These issues can be prevented by planning for the succession. Despite this, there are many other reasons that lead to family business succession failure.
Fager and McKinney 2007 explain that family business transition planning is ignored due to a couple of reasons. Firstly, is the good times high. When the times are good, people tend to ignore the difficult and hard times. The business’s success can be easily maintained when a person is still managing it not after they have gone.
Businesses go through tough times such as theft by employees, accounting and a broken plant. These problems need to be tackled. The company will have minimal chances of being successful as the long term ramification of not planning succession. The other succession planning failure is immortality complex. The meaning of this is that many do not like to face the reality of death or sickness. Successful business people get influenced by the immortality complex. People neglect planning for business transition earlier on because of employee and family feuds.
Poor business management can result when the members of a family get emotional or political. These issues make people to even fear planning for the future events. There are those who are not ready to let go of their businesses. Entrepreneurs usually feel they have accomplished a lot when they still hold on to their bisinesses. The time and sweat that was invested in the business makes the entrepreneur feel like they should still hold on to the business. People also ask themselves who will manage the business if they have left.
It is hard to understand tax hurdles during the event of selling or transitioning the business to the incumbents. Tax issues are then ignored and more urgent issues are dealt with. People tend to lack faith in the successor and this is one of the reasons why succession planning is neglected. Despite this, the business may have a reputable successor who can make the business more successful. Despite the above, the successor is normally faced with skepticism. 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. Such issues should not be neglected in the short term otherwise the consequences will be more in the long term.