Most entrepreneurs dream of passing their business on to their children. However, in many cases, business owners fail to adequately prepare the next generation for business succession.
From a privileged perspective, the next generation often lacks the sense of responsibility and stewardship that it takes to safeguard a successful family business. You can probably name a few successful family businesses that disintegrated after the second generation took over.
According to statistics, 70 per cent of family businesses fail or are sold before they’re passed on to the second generation. Even more devastatingly, 90 per cent of family-owned businesses don’t make it to the third generation.
Despite having the opportunity, many business owners neglect to equip their children with entrepreneurial knowledge and skills. As an entrepreneur, it’s understandable that you want to keep your family life and business separate.
However, if you want to give your kids an advantage in today’s highly competitive marketplace and equip them to take over your business, it’s never too early to start their entrepreneurial education. Here are some tips to help you get started.
Share about your business
Don’t separate your business and personal life to an extent where your kids don’t know exactly what you do.
If you want your children to start picking up entrepreneurial knowledge from the beginning, get in the habit of sharing with them about your business.
Even a young child can start understanding the basics of sourcing products, looking for customers, and making a profit.
Take time to talk with your kids about the major projects you’re working on – explaining their importance in a way that’s easy for them to understand.
Take this time to teach your child important skills in setting goals, planning, and project management.
As your kids grow, you can even start asking them to share their ideas. You might be pleasantly surprised at the creative solutions that your children come up with.
Even if your child eventually chooses to not take over your business, encouraging them to think creatively and come up with solutions will serve them in their careers and personal lives.
Bring them along
Don’t just tell your kids about your business, give them a chance to see you at work. You can bring them along when attending business events or even allow them to sit in quietly during business meetings.
Later, you can ask them questions to find out what lessons they’ve learned through this kind of involvement. This also gives you the opportunity to elucidate anything they didn’t understand or lessons you want them to pick up.
This kind of exposure gives your child invaluable early insight into the world of business and might spark them to follow in your footsteps. With older teenagers and young adults, you can gradually require them to take more active roles when you bring them along. In a mom-n-pop kind of shop, your older children are even capable of manning the store for a few hours.
Hire your child
Just like everyone else, your kids need some motivation to provide services for your business. Forcing them to work for you for free is the fastest way to make them resentful about your business, pushing them to explore other career options.
Paying your child to work for your business accomplishes two goals – it helps you equip them with skills and experience while also giving them a monetary incentive. In addition, empowering your child with a paycheck enables them to cater for some of their personal expenses and learn how to save and invest.
With financial management being a key part of successful entrepreneurship, your kids will have a great head start.
How much should you pay your child? Well, you have to pay them for the value of their contribution. Don’t overpay or underpay them.
Let them work for another company
When your child has reached adulthood, don’t be in a hurry to offer them a job in your company. Your children need to mature before they can work for you in a more formal way.
The best way to give them this maturity is by allowing them to go and work for another company for at least five years.
Without the cushion of having daddy or mommy as their boss, they will have to work competitively to advance their career. Having another person in charge will teach them how to be accountable and equip them with work ethic and time-management skills.
Set a succession plan
In many cases, businesses fail when there’s no clear succession plan. If the owner passes on unexpectedly, the children might start squabbling about who should be the boss and how to distribute profits.
To avoid such scenarios, put a succession plan in place for your children. Take into consideration each of your children’s strengths and weaknesses and appoint the best person to take over after you.
In addition, set clear policies about hiring family members. For instance, you can set minimum requirements for a family member to take a leadership position in the company.
Such requirements can include years of experience, level of performance, relevant education and training, and demonstrated ability to handle responsibility.
Having a formalised succession plan and employment policies will go a long way in minimising disputes. Instead of expecting to be handed plum positions in your company, your kids will know exactly what they need to do to earn those positions.