Top 5 Reasons Family Business Fails

Family conflictResearch suggests that family businesses have a significantly high failure rate compared to other setups. An article from the Business Spectator supports this claim, saying Aussie families are struggling with matters related to succession. The article, titled “Breaking the Cycle of Family Business Failure” notes that only 30 per cent of businesses survive the transition from first to second generation, while only 12 per cent will reach the third one.

Here are 5 common reasons behind the failure of family businesses:

Family Conflicts

Conflicts happen in every family. Generational conflict is the most common, hindering the growth of the business, especially if there are disagreements on missions and values. It is important that the next generation should not reject established methods and predecessors should demonstrate flexibility in exploring new business strategies.

No Trusted Advisers

Businesses require more than lawyers and financial planners. It is always best to have professionals who have a clear understanding of the family business setup and its unique challenges. Advisers should be able to work collaboratively with the family to provide the best outcome for the business.

Unprepared Leaders/Successors

The next leader must learn all aspects of the business. Marin Accountants notes that it is important for the current leader to create guiding principles that outline requisite education or experience before assigning a family member to an important position.

Fundamental Principles

Traditional business education is not enough to meet the complex demands of a family business. Issues such as succession planning, family dynamics and governance are overlooked or not tackled sufficiently in school. To ensure successful succession, it is best to seek out specialised education.

Poor Succession Planning

Business succession is important for companies to last beyond one generation. Without it, problems like corporate instability and high turnover rate will soon destroy the business. It is important for owners to develop and train employees or family members to take top positions, so business can move forward successfully.

Business success is possible if families understand that they need to add value to the business instead of just seeing the company as a provider of profits. This calls for family members to actively lead the business, support the strategies, and understand the industry deeply.

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