Family businesses ownership trends are changing.
A recent survey reports some interesting results including changes in current owners’ intentions regarding ownership transfers. The survey was done by PricewaterhouseCoopers. The full results can be reviewed at 2017 US Family Business Survey.
According to the survey, 83 percent of family firms do not plan to change hands in the next five years. However, the most surprising result of the survey is that among family-owned businesses contemplating a transfer of ownership within the next five years, only about half of the owners plan to pass the business on to the next generation of the family. This is down from 74 percent two years ago and is the lowest percentage in 17 years.
One possible explanation for the dramatic drop addressed in the survey is the increasing difficulty of formulating a succession plan for small to medium-sized family businesses.
The longevity of family firms depends on sound succession planning. Companies that have made it to the third generation are much more likely to have a succession plan than younger firms. In fact, the survey reports that 75 percent of third generation and beyond ownership have a plan for succession.
Other survey results:
- 11 percent of family firms plan to diversify
- 29 percent plan to expand internationally
- 21 percent say innovation is a priority
- 64 percent of family firms say they are more entrepreneurial than other type firms
- 52 percent of firms say they reinvent themselves with each generation
- 75 percent of first and second generation firms say they will give men and women equal opportunity for leadership. With third generation and beyond, the result is 57 percent.
Our office specializes in services to family firms and offers assistance in succession planning. Please contact us if we might be of assistance.
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Interesting article, Bill. I have dealt with some family business, and there are some unique dynamics between family members – even those not engaged in the business.
Spouses can unwittingly start battles between siblings by planting seeds of discontent – ¨so and so isn´t working as hard as you¨, ¨you should be in charge, not so&so¨, etc.
But even more destructive to the family is how an estate is divided when the parent doesn´t feel one of the children want to, or is able to, be engaged in the business, or when one of the children doesn´t want to be engaged in the business – and would rather have the cash.
And then there´s the situation where the 3rd generation wants things to change, but don´t feel comfortable expressing their point of view – because of prior intimidation or rejection. They may need an intermediary to help them with the confrontation – but who?
And, I had a strange situation lately with a potential client. This couple, in their mid-70´s, were weighing their exit options of: (i) handing on for an indefinite period of time or (ii) selling to their kids. What are the ¨kids¨ expected to do in the meantime?
Exit planning may not be a perfect solution, but it’s a great start.
Tom:
Thanks for stopping by. You are so right. Family dynamics can make business decisions unusually complicated.
Come back to see us!
~Will