A new study conducted by BlumShapiro and Baker Tilly International shows that the time for family owned businesses to start planning for succession is now, though nearly 80% are not prepared for what happens when current management steps down.
The report, entitled Succession Reset: Family Business Succession in the 21st Century, finds the goal of succession planning today is instilling business competencies and experience in family members who are interested, rather than simply handing over the business. The reportshows that there is a generational shift among family owned businesses-which make up two-thirds of all businesses-that has never been seen before and is expected to last for the next decade. This is largely due to members of the baby boomer generation reaching retirement age and exiting from management and control of businesses.
Stephen Bonder, Partner with BlumShapiro, said this Succession Reset report represents both significant opportunities and significant risks for family owned businesses.
“Family business is big business in America, but we are in a new era in which a family business isn’t necessarily going to pass from one generation to the next. This is why businesses need to be prepared with plans for succession now, though the reality is four out of five of them are not yet prepared,” Bonder said. “The study identified numerous advantages of beginning the succession process sooner than later, including continuity of the business, achieving family harmony and sustaining ongoing jobs.”
Conversely, he said the challenges of succession planning include building financial capacity to sustain a growing family and dealing with the complexities of the modern business environment.
The report identifies eight “success strategies” needed for the proper succession plan, which provide the framework for executing a transition.
“Once these principles are in place, families need to establish goals, adapt their needs to their own capabilities, establish a ‘wealth map’, show how control will be transitioned, create a viable, competitive future for the business and understand the role of legacy,” Bonder added. “The skills required by the current generation for a proper succession are more complex than ever. They need to ensure the business is ‘succession ready’ for either transition or market sale.”
Succession Reset: Family Business Succession in the 21st Century is available online here.
Chief Marketing Officer, BlumShapiro