Privately-held, family-owned businesses have been the strength of our economy for years, and they currently account for at least half of all companies operating in the U.S. Not only do family businesses face the same economic and social challenges as all other companies, they have an additional element to cope with – family. Fortunately, family businesses have historically been resilient.
However, a new challenge is facing family-owned companies. In 2010, the first of the Baby Boomer generation began turning 65, a pivotal age when most people begin contemplating retirement. This was also a time when our country was still mired in the economic downturn. Family business owners who were getting ready to retire were, in most cases, forced to remain working in the business and ride out the recession. Not only did their businesses need their experienced leadership during this tumultuous time, but their assets outside of their businesses had lost substantial value.
Fast forward to today: Since 2010, our economy has strengthened. Many assets, such as real estate and marketable securities, have seen an upward trend in value. This upswing, coupled with the fact that the Baby Boomers are now six years older, means we are now in a prime time for owners to exit their businesses. But how ready are they, really?
Kreischer Miller recently conducted a survey of family-owned businesses to answer that question. Some of the results were staggering. According to survey respondents:
- 65 percent said the senior generation business owner does not have a clear retirement plan
- 51 percent of senior generation owners do not have a succession plan
- 55 percent expect to transition the business to a family member, yet only 37 percent have a development plan in place for their next generation leaders
So you can see the dilemma so many family-owned businesses are facing—the impending transition of the business with precious little preparation. If you find that you are in the same boat, here are a few key steps to begin taking now:
- Evaluate your personal situation. Take an inventory of your assets outside the family business and their ability to generate income.
- Understand your options. Just because you are a family business today, it doesn’t mean family is your only option for the future (even though it may be your preferred option). ESOPs, management buy-outs, hiring an outside executive to temporarily run the family business, or selling to an outside party are all viable options.
- Allow time to evaluate and prepare. We suggest at least a seven to ten year window to start preparing the business and yourself for your departure. This means not only transitioning certain roles, but also beginning to contemplate what life will look like outside the business.
Begin taking these steps and you will be better equipped to navigate the impending storm!
Steven E. Staugaitis can be reached at Email or 215.441.4600.
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