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Fewer Family Businesses Are Staying in the Family

  • 29 August 2017
  • Author: Alexander Carr
  • Number of views: 2453
Fewer Family Businesses Are Staying in the Family

It was once common for an entrepreneur to pass a business down to the next generation in the family. In fact, the practice crossed industry lines, with retail stores, plumbing businesses, law firms, and even physician practices commonly being passed down to the children who had been groomed from an early age to carry on the family business.

But times are changing.

Among family-owned firms that foresee an ownership change within the next five years, only about half plan to pass the business on to the next generation. This is the smallest share since 2010 and is down nearly 25% percent from only two years ago.

This phenomenon—a waning interest in passing the ownership baton to the younger generation—was recently spotted by consulting firm PwC as it conducted its annual U.S. family business survey. The cause may not be a lack of confidence in the next generation but, instead, a lack of vision when it comes to succession planning. PwC calls it “the missing middle” or a blind spot about succession planning and the necessary good governance underlying it.

“By ‘missing middle,’ we mean the gap between two visions—the entrepreneurial vision that sparks the formation of a business and the long-term vision that allows family firms to pursue strategic goals far into the future,” PwC researchers report. “For a vision to become a sustainable reality, it needs to be coupled with a clear and well-executed plan that bridges the mid-zone between now and the distant horizon.”

PwC points out several areas in which business owners may want to refine their thinking in order to preserve the family business for generations to come. These include:

  1. Understanding that change is inevitable (and preparing for it). Nearly 90% of family firms admitted they plan to achieve their 5-year growth goals by continuing to sell the same way they always have. But what about industry disruption (like technology advances, cyberthreats and globalization) or internal disruption (like a sudden change in leadership)? Is there a plan to tackle change that may happen outside the company’s control?
  2. Closing the gender gap. When business owners fail to identify future leaders in the younger generations, they may be overlooking a very important group: women. Nearly 40% of family businesses neglect to consider women as equal leadership material to their male relatives. “[That’s] distressingly low when you consider that women not only make up half the US population, but are also more likely to hold a college degree than men are,” PwC researchers point out.
  3. Bringing in outside support as needed. When it comes to keeping a family business successful, there’s a difference between owning and running the business. A few years ago, keeping family ownership of a business while bringing in outside management was a trend. But PwC has seen the number of entrepreneurs opting for this hybrid solution drop by more than 20% and, instead, deciding to sell the business altogether. Perhaps the trend has shifted because while bringing in outside management to help run the business can help bridge the gap between short-term planning and long-term goals, it again requires a strategic vision to work. 

Our good colleague and exit planning expert John F. Dini once said, “Many things keep a business owner awake at night, but none is more important or more challenging than exiting a business.” If you want to keep your business within the family but are having a tough time identifying a way to make the transfer successful, it’s time to surround yourself with financial and succession planning professionals who can help you make your vision a reality. Contact us for ideas on where to start.

Image Copyright: leeavison / 123RF Stock Photo

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