Why 80% of Family Businesses Have no Succession Plan?
There is much bemoaning of the harm done to democratic societies by the widening gap between the wealth of a few and the economic struggles of the majority. The middle class of 30 years ago was robust and growing. However, the “American Dream" - both benefiting from and meaningfully contributing to the prosperity of capitalism, is more a nightmare for most workers these days. They punch the clock for someone else, see their wages and benefits stagnate and the CEO’s salary rise. They do not know how they will pay for their children's university education, much less their own retirement. Those who hold the capital control it, while the discouraged workers have no voice. The democratic process informing the economy within, which everyone must live, now looks as though it borrowed the ideal from Marx.
So let me look closer at a few other pieces of the big picture that is forming:
Recent surveys find that family-owned businesses make up 80 - 90% of US business. This represents about 60% of GDP and 78% of US jobs. http://sponsored.bostonglobe.com/rocklandtrust/more-than-8-out-of-10-family-businesses-have-no-succession-plans/ Two thirds of UK businesses are family-owned, employing 47% of private sector employment. https://www.ifb.org.uk/advocacy/about-family-business/.
Baby boomers (very roughly those born between 1940 and 1960) own a majority of these family-owned businesses.
Eight out of ten family businesses do not have succession plan today.
While family firms state that succession planning is their most pressing challenge - ahead of those concerns that actually revolve around running the business. Now, less than 20% of family firms have a viable plan in place. Some have plans, some have talked about varying ideas, but the percentage that has committed reasonably workable steps to paper is closer to 16%.
There are a variety of reasons that families have not planned. The work of talking of growth and profitability, dealing honestly with the numbers and making final decisions is difficult enough. The often messy realities of family and retirement add another layer of emotional scope that can be downright unnerving.
Not knowing where to start or what to consider are frequently named as roadblocks to responsible succession planning. Other concerns are existing conflict with family or employees and the sheer complexity of the whole succession prospect. As well, many parents know that their own children are either uninterested in or frankly incapable of running the business profitably.
What this handful of facts means is that there is an immense amount of business ownership opportunity coming from retiring business owners who found that the next generation, for whatever reason, is not the answer to their business succession.
Frequently, I am asked my opinions relative to purchasing an existing business. My typical comment is that this is the most sensible choice I can recommend to those seeking to own a business for themselves. Profitable, small to medium enterprises (SME's: $1M - $20M annual revenue) are coming on the market every day, with more aggressively slated to come in the next few years. With the right knowledge, it is easy to finance and purchase a business - typically without using one’s own capital. It is even a highly worthwhile option to purchase a struggling business and turn it around.
I tell those who are interested in directing their own destiny that, ultimately, purchasing an existing business will allow you to impact the community immediately. On the contrary, starting a business from scratch requires an immense deal of time and effort before it can even begin to be reliably profitable.
Ownership and the accompanying control will have a positive impact in two very important ways. You will be able to make decisions that are distinctly in your own favor and in the favor of those you employ. It will also give you a reason and a voice to influence the rules of the economy in which you exist. It is this control of your own share capital that will do a part to restore the democratization to wealth.
