The facts and fiction of keeping your family business afloat.

If you own a family business, you have a lot to be proud of ... You've built the business from the ground up. You know it inside and out, top to bottom. You've taken it through hard times and the business is now a winner.

But, as successful as it is now, do you realize it could go belly up when you turn it over to the next generation? That's right. The odds are against family businesses making it past the original owner.

Most of these businesses fail because the owner (that's you) hasn't developed a long-term plan for its eventual succession. Why do family business owners fail to do this simple planning? Most often it's because they believe in certain myths that can seal the doom of a family business.

The most common myth is that the purpose of estate planning is simply to save taxes. In reality, the most important reason for estate planning is to ensure the perpetuation of the business; the second priority should be income protection for the retiring generation. Lastly, estate planning should deal with such issues as equitable treatment of the children, minimizing estate taxes, and ensuring family awareness of how the assets will be distributed.

Following are other notions that, if believed, can destroy the chances of your life's work lasting another 30 years.

Myth: The best way to ensure security for the founder's spouse is to leave the spouse an ownership interest in the business.

Reality: Stock ownership too often is equated with financial security, and in most cases, stock in a family business pays no dividends and is almost impossible to sell.

Myth: The founder always should leave the business equally to surviving children; and the oldest or most loyal child should be left in charge.

Reality: While loyalty is an important factor in choosing a successor, the leading criteria should be competency, training, and commitment.

Myth: The best way to ensure long-term survival is to preserve the founder's management style in succeeding generations.

Reality: Management styles in the business world change dramatically from decade to decade. Therefore, to expect the founder's management styles to still be effective today is unrealistic. Management flexibility is essential if you want your business to succeed into the next generation.

Myth: Because informal management systems are the most effective for family owned businesses, long-range planning is not necessary.

Reality: If the needs of both family and business are to be effectively integrated during the transition process, a straightforward "game plan" for the business must be put in place.

In reality, even the most successful family owned businesses need a succession plan to make it under second and third generation leadership.

Your succession plan must spell out the business' goals, offer sound financial and marketing strategies to reach those goals, and outline a sensible organization structure that defines management responsibilities, assignments, and compensation formulas.

It's also crucial, during the planning process, to outline a program for choosing and training your successor. Children who show a genuine interest in following in your footsteps should be encouraged to gain relevant experience and education by spending several years working in other businesses. This will help them develop a broader perspective on the industry, as well as prove themselves in an environment free of family biases. Once you choose your successor, gradually turn over your responsibilities and become more mentor than leader.

Don't leave the future success of your business to chance--set forth a solid succession plan now!

Jeff Hanson is a freelance writer.