Few Family Businesses Make It to the 4th Generation

For most people who start a family business, the dream is to have it stay in the family for generations to come. The founder may think of that as a gift to the family, giving them meaningful employment and an easy income. They may think of it as a stepping-stone, assuming that their children can build on what they started. When asked, about 88% of people who run family-owned businesses think that those businesses will stay in the family for at least five more years.

However, the statistics paint a far bleaker picture. Most family businesses fail at an alarming rate. It is very rare for them to move on from generation to generation.

For instance, a mere 30% — less than 1 out of every 3 businesses — actually make it on to the second generation. These are the children of the founder. They should theoretically be in the best position to run the company. Yet most fail.

Beyond that, a staggering 12% carry on farther and get to the third generation, or the founder’s grandchildren. The fourth generation sees a mere 3%. By the time that the great-grandchildren take over, 97% of family-owned businesses are dead.

People often have blind faith in their children and other family members. They have misplaced confidence. They think that it will all work out.

The truth is that running a family-owned business is incredibly hard. Keeping it going from one generation to the next is nearly impossible. Against these types of odds, you can see why it is so important to know about all of the legal options you have.