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How to Successfully Prepare Your Family Business for the Next Generation Your family business is your pride and joy. Here's how to make sure it stays that way for generations to come.

By Chirag Kulkarni

Opinions expressed by Entrepreneur contributors are their own.

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Family businesses represent an important sector in our economy and a way to bring two of our most foundational cultural patterns -- small business and family -- together in a way that can reinforce both.

Though family businesses are a proud tradition, they are also known for having high failure rates. With each generation of the family, fewer family businesses remain, and by the third generation, only 3 to 5 percent of such businesses still survive.

That may seem like a big risk, but there can also be big rewards: Some of the biggest success stories in business history started as family businesses.

Family businesses: the movers and shakers of the business world

When we think of "family business," an image of a mom-and-pop store may come to mind. But Walmart, Samsung, Nike and other giants all started as (or even remain) family businesses. According to research by Boston Consulting Group, 30 percent of all businesses with more than a billion dollars in sales are family-run.

It's not surprising that some of the world's top successes started under the family business model -- it has some important advantages. Because family members are involved, key stakeholders have a different kind of commitment to the company than may be found in non-family businesses. Leadership tends to be stable, and team members tend to be more flexible.

Given the distinctive nature of such companies, it's important to be mindful of the most effective tactics to enable your family business to thrive for generations to come. Here are a few simple things you should keep in mind if you want to not only maintain your family business, but grow it.

Related: 7 Tips for a Thriving, Successful Family Business That Lasts

1. Don't be arrogant: Outside advising can save your business.

Family businesses are passed down from generation to generation, and their employees often become experts regarding their product or service. But, that does not mean that they have a background in all aspects of a business.

Some businesses were founded long ago -- in some cases, hundreds of years ago -- and their traditions may not reflect current realities in terms of the market, technical innovations or investment. For that reason, it's important to have someone with some distance from the company advise the business on its future direction and how to plan for viability in the years to come.

Jeff Johnson, managing director of Blackford Capital, underscored this insight in an Entrepreneur article, writing, "Private equity investments can serve as catalysts for growth and product development for family business entrepreneurs by helping bring precision and accountability to those companies." He added that private equity firms can be a great help in implementing winning strategies for governance. Although it takes courage to ask for outside assistance for your family business, reaching out to quality advisers will benefit the company in the long run.

Outside help also pertains to keeping excellent financial records. In a family owned business, it is easy to find someone in-house to do your books to save money, but this only works if he or she knows what he or she is doing.

This is one of the areas that many family businesses will outsource to private accountants or financial firms, because balancing the books can make or break a business. Leaders must be willing to take their financial adviser's advice, and accountants need to level with family business clients, whether they want to hear the hard truths or not.

Related: Six Ways In Which Private Equity Can Catalyze The Growth Of Your Business

2. Communicate regularly: Families that talk together profit together.

When your business partners are also family, it is vitally important to make sure no one is left out. Of course, doing that well is not always easy. For example, all family members must be clear on their expected role in the business -- or out of it, as some may prefer to pursue their own career paths.

Even when family members are out of the day-to-day operations, they can still participate as board members or receive dividends. Be sure to keep communication open and current within the family to make sure everyone is clear on the business's plans and expectations.

Among its tips for formalizing communication, The Family Business Consulting Group recommends holding a general meeting at least once a year, using a flexible and inclusive formal agenda and keeping business jargon to a minimum. During these meetings, leaders of the business should be able to share their passion and vision for the future, and other family members should be able to voice their questions and concerns.

Related: The 3 Ts of a Successful Family Business Transfer

3. Teach your children well: The future is in their hands.

Because family businesses are intended to be passed on to the next generation, it's a great idea for younger family members to start the process of understanding business fundamentals as early as possible.

When asked what topics were most important for the next generation to learn about, respondents to a 2015 IMD Global Family Business Center survey said that family and board governance topped the list. Close behind came entrepreneurship, leadership, and matters of succession.

Fortunately, today there are many enriching ways to launch the next generation's business education. One approach is to have younger family members participate in summer internships. Another excellent option is summer camps that offer entrepreneurial programs, such as the Business Entrepreneurship program at Julian Krinsky Camps & Programs, which features a Shark Tank-styled competition. Learning by doing can be extremely engaging and effective for students and is excellent preparation for the real business world.

What all these strategies have in common is keeping the flow of information open and connected to reality. That information can be about business or investment options, the values and hopes of the family members or entrepreneurial education for the younger generation. Isolation -- whether of a family member from the business or of the business itself from the larger market context -- is the biggest risk to the continued health of family run enterprises.

Staying open and receptive can make all the difference in whether a family business remains a point of pride not only for this generation, but for ones long into the future. Commit to these few basic strategies to enjoy the stability, trust and pride that comes from being part of a family business.

Chirag Kulkarni

CMO of Medly

Chirag Kulkarni is the CMO of Medly, a digital pharmacy in New York City.

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