Many family businesses are facing a key decision – to pass the business on to the next generation or to sell it? But statistics show that both paths often end in failure. What are the most common mistakes founders make and how can they avoid them? Stiva Jokes, owner and CEO of BA4U, focuses on creating systems that allow family businesses to survive and thrive for generations to come.
Mr. Jokes, what led you to take up the topic of intergenerational transfer of family businesses?
Unfortunately, the statistics are relentless: 70% of founders want a family member to take over the company, but only 12.5% of family businesses are successfully passed on to the second generation, 8.8% of the total. Another 30% of founders want to sell the company. Only 30% of the plans are successful, which corresponds to 9% of the total number of companies.
What do you think is the main reason why handovers often fail?
The main reason for failure in intergenerational handovers, as I see it, is the unpreparedness of the owners and the inexperience of the advisers. Family business owners often have neither experience nor sufficient support from professionals. They focus mainly on technical solutions – legal transfer of assets or restructuring through holding structures or funds.
What’s missing is 1) a focus on the family business itself and 2) an effort to create a “family system of long-term stewardship” and I would even say 3) a family philosophy that will be the pillar of their wealth for generations. Inspiration can be sought from medieval noble families whose wealth has endured for generations.
What do you think are the biggest mistakes founders make when handing over a company?
I would like to point out what successful families avoid in intergenerational transmission:
- First cardinal error – the individual is more than the whole
Transferring ownership, transferring its management and managing the business are three distinct topics. While the founders often handled them on their own, the next generation needs a stable structure and long-term principles. This system needs to work for decades to hundreds of years. It is not enough to simply create a family constitution, for example – the key is to build a structure that will still be relevant decades from now. A successful system then operates on defined roles, the fulfilment of defined requirements for these roles by individual family members and their development plans.
- Second cardinal mistake – transfer of ownership without restructuring
Ignoring that some founders do not address the above at all, they do so by directly transferring business shares or stock to the children. What have they done? For example, if the company has a cumulative retained earnings of 500 million. CZK, they have deprived the family of CZK 75 million. CZK in withholding tax if in the future this profit is paid out to the owners in the form of a profit share. Not only did they neglect a number of tax aspects, but they missed the opportunity to, for example, split the company into sub-businesses, to separate the family assets from the business, which would have both protected the risks and simplified future asset management.
- The third cardinal mistake – the management of the family business is just “simply” handed over
We often see that the founder of a family business from one day to the next hands over to his offspring in the style – “here you go and swim”, because “nobody taught me to swim either!” This approach often ignores key context. After all, the founder thirty years ago was not taking over such a large and complex company, but building it from the ground up, and besides, it’s “such a different time”, definitely harder. What’s more, it is forgotten that in the next generation you have to start managing the company in a completely different way.
How can BA4U help founders avoid these mistakes?
That’s why BA4U s.r.o. was created to offer a comprehensive solution for wise founders. A successful family system then works with the help of defined roles, the fulfillment of the set requirements for these roles by each family member and their development plans.
Do you have any recommendations for founders who are considering handing over the business?
It’s not enough to simply create a family institution, for example – the key is a system, an understanding of the philosophy of successful families, and real long-term preparation of family members. It is important to start early, to involve experts and to focus not only on assets but also on the family relationships and business strategy itself
