Here’s Why Your Children Should Not Inherit Your Business


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There are some astounding statistics surrounding family business succession. First, the average lifespan of a family-owned business is only 24 years, or roughly one generation. In addition, nearly 60% of family-owned businesses fail to make it to the second generation, while nearly 90% fail to make it to the third generation. Nearly half of the family-owned business failures were caused by the founder’s death, while only 16.4% of family-owned businesses failed after an orderly transition.

As an entrepreneur, you can spend your lifetime building your business. It is a unique asset that represents a large portion of your legacy. Yet, almost instinctively, you probably treat your business the same as your other assets and ultimately expect your children to inherit it along with the rest of your estate. Doing so, as the statistics show, virtually guarantees your business will fail. While you could labor over trying to solve the riddle of how to properly hand over your business to your children in a way that defies the odds, perhaps the better answer is to not leave your business to your children at all. Statistics aside, there are a number of very good reasons why your children should not inherit your business.

Related: Billionaires and Millionaires Who Aren’t Leaving All Money to Their Children

1. They need to be free to discover their own life purpose

Everyone has a purpose in life — some value that only they are capable of bringing to this world. Rather than trying to groom your children to fit into your business, you must allow them to be free to discover who they truly are and what their purpose in life is. If that leads them back to your business, then great, but don’t hold your breath. The likelihood that your children’s life purpose falls squarely in line with the business you have created is slim.

2. The family business can lead to an unfulfilling life

Ask a room full of parents what they want for their children, and you will overwhelmingly hear that they want their children to be happy and live fulfilling lives. Science now points to five factors in living a happy, fulfilling life: positive emotions, engagement, relationships, meaning and accomplishments (often referred to as “PERMA”). Pressuring your children to take over the family business or creating such expectations can result in resentment and other negative emotions, cause your children to become disengaged and uninterested in the family business, hinder your children from developing meaningful relationships outside the family business, not fulfill your children’s sense of meaning or purpose and make them feel like they have not earned their position. In other words, your children could land low on the PERMA scale and end up less fulfilled than had they chosen some other path.

3. Mixing family and business is complicated

Family dynamics are complicated. Too often in a family business, personal relationships can interfere with professional ones. Issues that have percolated at home can easily find their way into the office, which can result in unnecessary feuding. Further, your family members may have very different ideas on how to fundamentally run a business, leading to conflicts and disagreements. All of this puts a strain on the business and can ultimately lead to its failure.

Related: Want Your Succession Plan to Succeed? Avoid These 8 Stumbling Blocks

4. Nobody likes nepotism

Giving your children positions of power within your business can be seen by other employees as nepotism. This can result in resentment and lead to a toxic work environment. It is better to promote from within the company based on merit, not familial relationship.

5. Avoiding an inherent conflict of interest

Your children are your heirs and the economic beneficiaries of your estate. However, a large portion of your wealth may be tied up in the value of your business. As beneficiaries, your heirs will likely want access to your wealth and liquidity, in which case they may be incentivized to sell the company against your wishes or maximize distributions, rather than invest in the company’s growth. This could ultimately lead to the demise of the business.

Related: Succession Planning: How to Ensure Your Business Will Thrive Without You

When it comes to family business succession and legacy planning, a key distinction to make is between economic benefit and managerial control. While you may want your family to ultimately benefit economically from your business and legacy, the truth is that they are often the wrong managers of your business and legacy. Rather than looking to your family to be managers, you should consider sticking to experts, professional advisors and key employees who are best qualified to run the business and ensure its continued success and growth for generations to come.


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