The Importance of Succession Planning in Private Businesses
In private and family-owned businesses, day-to-day demands often take priority over long-term planning. Yet one of the most critical questions every owner must answer is: What happens to this business when I step away?
In the furniture industry, it seems like whenever I look at any of our great trade publications, another company cites having nobody identified to carry legacy as another reason for a multi-generational business failing.
Without a clear succession plan, even profitable, well-run companies face disruption, conflict, and in many cases, collapse. Studies show that roughly two-thirds of family businesses have no documented succession plan, and as many as 70% of small business owners never successfully sell or transfer their company when they exit. For many families, that means a lifetime of work and wealth disappears in a single generation.
This article explores why succession planning matters, the risks of failing to plan, and how private businesses can put strategies in place to protect their legacy.
What Succession Planning Really Means
Succession planning is not just about choosing an heir. It is the structured process of preparing for leadership, ownership, and management transitions. That includes:
Identifying critical roles.
Developing internal talent.
Establishing emergency and long-term contingency plans.
Aligning legal, financial, and governance structures.
The goal is continuity and ensuring the business thrives beyond the current owner’s tenure.
Why Succession Planning Matters
Continuity & Stability – Prevents operational gaps if a leader retires, resigns, or passes unexpectedly.
Protecting Business Value – Smooth transitions protect employee confidence, customer loyalty, and lender trust.
Family & Legacy Considerations – Avoids disputes and ensures the founder’s vision endures.
Talent Development – I talk about this all the time with my clients…makd sure you are always building a bench of leaders ready to step up, reducing reliance on costly external hires.
The Risks of Failing to Plan
The statistics are depressing and sobering:
Only 30–40% of family businesses survive into the second generation, 10–15% into the third, and just 3–5% into the fourth.
44% of firms admit they have no succession plan for key senior roles.
Gallup reports that about one-third of business owners have no plan at all for what happens to their company when they exit.
The impact of poor planning is real: companies sold under distress, family rifts deepened by unclear expectations, and employees left uncertain about their future.
By the way, that was me until the pandemic hit and I had time on my hands for about 30 days to do some soul searching and thinking. I set a certain date of 5 years that I would want my plan fully in place so that if something happened to me, someone could carry on the firm, and my family would be stable financially should that happen unexpectedly.
Case Studies: Success and Failure
McDonald’s – A Model of Preparedness
When McDonald’s CEO James Cantalupo died suddenly in 2004, the company was in the midst of a turnaround. Fortunately, because it had a strong leadership pipeline, James Skinner was ready to take over immediately. The turnaround continued, and shareholder value surged. Lesson: Grooming multiple internal successors provides resilience.
The “Bloodline Trap” – A Family Business Collapse
One family enterprise thrived under its founder and even through the second generation. But by the third, internal conflict and financial mismanagement (including embezzlement) caused collapse. With no governance or accountability mechanisms in place, the business couldn’t survive. Lesson: Even a legacy alone cannot sustain a business without strong governance and clear succession planning.
Multi-Generational Transitions – Research Insights
A recent study of three family successions in a single extended family revealed that early preparation, role clarity, and governance structures (like family councils or external boards) reduced conflict. Where roles were fuzzy or conversations were avoided, conflict intensified. Lesson: transparency and structured communication matter as much as financial planning.
Best Practices for Private Businesses
Start Early: Treat succession as an ongoing process, not a one-time event.
Develop Internal Leaders: Invest in mentoring and training. We suggest doing succession planning every 6 months and getting creative. Maintain a spreadsheet for peace of mind and to keep it updated.
Build Governance: Family councils, boards, and outside advisors provide accountability.
Plan for Multiple Scenarios: Death, illness, retirement, or sale all require distinct plans.
Align Legal & Financial Tools: Wills, buy-sell agreements, and estate planning should be in sync.
Communicate Clearly: Employees, family members, and stakeholders should understand the path forward.
The Strategic Advantage of Proactive Succession Planning
When done right, succession planning becomes a competitive advantage. It:
Strengthens reputation with lenders, investors, and employees.
Helps attract and retain top talent who see a future with the company.
Provides peace of mind to owners and families.
Ensures the business is positioned for growth — not just survival.
In our practice within the furniture industry verticals, we work with just as many private businesses as we do public companies. Let’s face it, public companies have many more resources to do succession planning. Sometimes, even when they have grown large with a legacy leader at the helm, that too is difficult to replace. Carrying on one person’s driving vision and leadership is very challenging.
Succession planning is not only about an exit; it’s about building durability into a business. Whether you envision passing the company to family, selling to trusted managers, or recruiting an external executive, the key is to start before a crisis forces your hand.
There are options out there for software packages to develop talent profiles and to dynamically update your talent pools. You can get sophisticated with 9-box grids and nomination workflows.
One thing is certain and data is clear: without planning, most private businesses do not survive beyond a generation. With planning, they can thrive for decades, preserving both legacy and value.
