Perspectives from ISB

Imagine a mom and dad at the age of 67 who own a small, but profitable bed and breakfast in New Hampshire. They want to retire soon, but their two kids aren’t interested in taking over the family business. What do they do?

As the baby boomer generation reaches retirement age, this is a question many small businesses owners are starting to ask. With only a small percent of family-owned businesses being passed on to the next generation, most of these businesses will either quietly go out of business, or get sold to out-of-state buyers.

But Ted Clark, director of Northeastern University’s Center for Family Business, said owners without another generation to pass the company over to is not necessarily a new trend. He said it’s part of the “cycle of family businesses”. Another issue facing small business owners is the ever-political estate tax. That was one of the first challenges that came to mind for Chad Moutray, chief economist for the National Association of Manufacturers (NAM). “It’s a big issue for manufacturers and sometimes that makes it so much of a tax burden that it’s not possible to transfer.”

Whether due to concerns about the estate tax or a lack of a successor to take over the family business, the shutting down of those companies could significantly impact state’s economies.

Take New Hampshire, for example, where manufacturers account for 11 percent of the total output in the state, employing 9.9 percent of the workforce, according to NAM. Manufacturers help to drive New Hampshire’s economy, with $3.95 billion in manufactured goods exports in 2016. In general, small businesses comprise about 87 percent of all exporters in New Hampshire.

Nearly one-third of family firms have no succession plan at all, and only 23 percent have a plan that’s been put in writing and communicated to key firm stakeholders, found a PWC survey. This is something the Family Business Consulting Group advertises on their website as an important discussion that needs to happen with family members.

But if those discussions don’t go anywhere, experts suggest selling to employees or a third-party, or assemble a team of advisers or a non-family CEO to bridge the gap between parents retiring and children taking over. The other option is to shut down entirely. Whichever option owners decide, family business consultants suggest starting to plan as early as possible.

Source: Plantz, Kyle., May 23, 2017, http://www.insidesources.com/family-business-baby-boomers/

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