Many small business owners put aside making hard decisions, such as who to designate as a successor. In fact, an Exit Planning Institute survey found that 83% of businesses do not even have a written transition plan. If you want to name a successor, you might be considering a son or daughter as your candidate.
Passing down the business to a child does not always work out, however. Here are some common scenarios in which an adult child successor is not the best option.
Disinterest in running the business
A child who feels ambivalent or unenthusiastic about the family business is often not a good candidate for succession. Running a company requires passion, dedication and willingness to work long hours. Your child should genuinely want to take over the business and be ready for the demands of leadership. A lack of commitment sets your successor and company up for failure.
Not enough qualifications
Skills, education and experience also contribute to a successful transition. Anyone lacking qualifications related to business operations, accounting, management or the industry of your company is likely not suitable to be the new owner.
Your child should have applicable credentials and proper vetting before taking the reins. Immaturity and inexperience create vulnerability to poor business decisions and unsavory influences.
Conflicts of interest
You should also know whether your children want your business to continue running or if they view the company as a source of inheritance. If you have tied up much of your wealth in your enterprise, your son or daughter might sell your business to reap a financial windfall. This is a situation where your children, being heirs to your estate, could have a conflict of interest with your business.
When adult offspring demonstrate eagerness, competence and people skills, preparing them to one day take over makes sense. Assessing succession readiness honestly and objectively helps set up the business and child for a positive outcome. In the event your child may not want the job or lacks the qualifications for it, you might be better off with another candidate.