Perspectives from ISB

The consensus among family business owners, according to The Family Business Institute, is that their businesses will continue to be owned by the same family or families at least five years from now. However, many of the 88 percent of owners who believe this will be fighting the odds given that only 30 percent of family businesses survive into the second generation, 12 percent survive into the third generation, and a mere 3 percent survive into the fourth generation and beyond.

Family-owned everywhere: Majority of American businesses are family businesses, and the extensive role that they play in the broader business community makes them indispensable, given their impact on and interconnectedness with all American businesses.

It may be worth pointing out that we aren’t just talking about the micro business on Main Street selling antiques to locals or the hardware store owned for generations a just a few blocks away attempting to compete with the likes of Walmart. Remember, a majority share of Walmart’s stock is still owned by the heirs of Sam Walton through the Walton Family Enterprises holding company, thus making Walmart a family business.

But what matters most?: Almost all business owners who are serious about an eventual transition of control of the family business to the next generation look beyond the numbers and the financial statements; they look beyond the payout to boost their retirement years. And almost all of them express their gravest concern: how to instill in the future generation of business owners their generational ideals and values.

According to a study by Deutsche Bank, what is most important to family business owners goes beyond the transition of financial wealth and extends to the transfer of primary values to the next generation. These include encouraging children to earn their own money, charitable giving, philanthropy and volunteerism.

The impending crisis: The 2016 Family Business Survey conducted by accounting and consulting firm PwC highlights the impending family business crisis when it notes that as many as 43 percent of family business owners currently have no succession plan in place.

The absence of a business succession plan can lead to incredible and often avoidable tax consequence, significant detriments to profitability and productivity, and worst of all, possible loss of family-ownership in the business.

The right professionals: With such a complex array of issues facing family business owners, it is no surprise then that a cadre of professionals is necessary to support those businesses in their planning for transition and in the process of transition itself.

The professionals most helpful in a smooth transition include a business law attorney, a CPA with business valuation credentials, a team of financial planners and wealth managers, and an exit-planning and family-values consultancy team. In the absence of one of these professionals, the transitioning business owner can expect a similar hole in his or her final transition.

Source: Conte, Anthony. M., March 9, 2018; http://www.cpbj.com/article/20180309/CPBJ01/180309897/no-guarantee-of-success-in-business-succession-guest-view

 

Leave a Message

Registration isn't required.



By commenting you accept the Privacy Policy