red from one generation to the next. Much of this wealth transfer will be in the form of family-owned businesses. Experts point-out, however, that the viability of many of these transfers is questionable, and that the likelihood is that most will fail. Typically, only slightly more that one-of-three family businesses is successfully transferred to the second generation. Survival of a family business into the third generation is an even rarer occurrence.
Thus, while thousands of family businesses will disappear over the next two decades, experts contend that many of them could survive with proper planning. The proper time to start planning the succession of a family business, according to experts is at least 10 years before the anticipated generational transfer is expected to occur.
There are both advantages and disadvantages associated with family-owned businesses for both the family owners and for the economy. Perhaps the major disadvantage for both the family owners and the economy is the high mortality rate of these firms during the period of generational transition. In the early-1980s, 70 percent of family-owned business firms failed to survive to the second generation, and that the average life expectancy for a family-owned business was 24 years, which also was the average managerial tenure of the founders of family-owned businesses. In the early-1990s, one-half of the owners of family-owned businesses in the United States did not expect their firms to survive as family-owned enterprises subsequent to their own departure from the management and control of the business. In the late-1990s, only 35 percent of family owned businesses survive to the second generation and only 20 percent survive to the third generation.
One factor frequently cited as a cause of the demise of so many family-owned businesses during periods of generational transition is a failure to develop the necessary leadership skills in members ...