Opting Out of the Family Small Business

The U.S. Bureau of the Census states that about 90 percent of American businesses are family-owned or controlled, according to an Inc.com report.

Ranging in size from two-person partnerships to Fortune 500 firms, these businesses account for half of the nation's employment and half of her Gross National Product. 

But a family business is more than just a place to work. And when a family member leaves, things can get complicated quickly compared to a traditional business setting.

What causes a member to want to leave? Is there a right way to do it if you're the one opting out? And how does the business carry on if a departure is inevitable?

We explore these questions here.

Reasons for Leaving

Most of the reasons for leaving a family business are similar to those cited by employees in traditional companies, such as burnout or job dissatisfaction. However, one of the more fascinating ones ties back to the nature of family itself.

In his piece, Quitting the Family Business,” Thomas D. Davidow talks about the role family nurturing can have in the decision to leave eventually:

An unintended consequence of this nurturing environment is that a family member might develop the insight and courage to realize that his passion lies elsewhere, or that there is an opportunity outside the family business that he should pursue.

Whether a family member is nurtured out or leaves for other reasons, the transition and how it's handled can have a lasting impact.

Transitioning Properly

If you're the one leaving, experts recommend keeping it professional. According to Ivy Exec, this means following a process that makes the split amicable.

Meet Privately

Arrange to meet privately to discuss your intentions to leave. Come prepared with a resignation letter that includes proper notice of two weeks minimum. Doing so shows you're serious and that you respect the person and process. It also allows for dialogue.

Participate in Your Transition

A smooth transition can help offset potential negative feelings. Offer to train your replacement or recommend someone suitable for the position. Be available during the remainder of your tenure to assist with questions.

Keep Your Emotions in Check

Managing your emotions is key to a successful departure. Keeping your composure will help preserve your reputation, relationships, and family business name for those you're leaving behind.

The Importance of Succession Planning

While most family business leaders have formulated an informal succession plan, only a fraction are documented and effectively communicated to all parties involved, according to a blog post by Davis Wright Tremaine of the law firm, Davis Wright Tremaine LLP.

The post goes on to say that COVID-19 has had an impact, stating that "the pandemic has made it clear that all family businesses should have a long-term succession plan, since circumstances can rapidly change in ways that are beyond the control of any family."

According to a Forbes Report on family business succession, disinterest by younger generations is another factor. It states that "fewer members of the younger generation these days are interested in working in the family business, let alone ultimately running it."

While these factors create challenges for family businesses, they're not insurmountable. Overcoming them, however, requires a long-term comprehensive approach.

Family Business Succession Plan Guidelines

The Family Business Consulting Group reports that less than a third of family businesses make it to the next generation and that roughly thirteen percent make it to the third. The ones that do have provided insights into the factors that make succession a success.

Treat Succession as a Process

It's not something you do one day and forget about the next. It's a long-term process that lays the groundwork for succession early.

Option vs. Obligation

Families that give children the option of being in the business at a young age, rather than positioning it as an obligation, are usually more successful in keeping succession in the family. 

Set a Foundation

Help younger family members understand the historical, cultural, and strategic factors that led to the business' founding. 

Assess and Assign Responsibilities

Work with family members to assess what role suits them best. As they gain experience, expand their positions accordingly, providing the in-house or outside training needed.

Meet Regularly

Don't assume that communication automatically happens because you're working among family members. Have periodic meetings to discuss the business, goals, and future.

Set Milestone Dates but be Flexible

Along the path to succession, set dates you can target with the final date you plan to transition the business to the next generation. If you must, be flexible, but don't lose sight of the overall goal.

While family members may stay, leave or transition it to the next generation, it's clear that the institution is here to stay and make an impact. Consider these recommendations above as you plan out your own small business’s transition process.

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