It is safe to say that family-owned businesses drive economic growth and development in the United States. As such, these businesses account for 64% of U.S. gross domestic product, generate 62% of the country's employment, and account for 78% of all new job creation. Their success and longevity is ultimately our economy’s gain.
Some statistics have shown that 30% of family-owned businesses survive the transition from first to second generation ownership.12% of family-owned businesses survive the transition from second to third generation, and only 13% of family businesses remain in the family over 60 years. The lack of succession planning may be one contributing factor to the declining percentage of businesses that exist beyond the second generation.
Succession planning is a plan of transfer of ownership of a company either by voluntary retirement of owners or for unplanned and involuntary exits, such as death or disability. It provides continuity, helps mentor and train the next generation of leaders, and ensures the owners’ long-term vision and strategic goals of the company will be met.
The 2023 North America Family Business Report from Brightstar Capital Partners and Campden Wealth reveals that a majority of family businesses (61%) do not have a written, formal succession plan in place. According to 29% of the respondents of this report, the avoidance or non-prioritization of developing a succession plan is due to family members feeling uncomfortable discussing this sensitive topic. 22% of the respondents state they do not have a succession plan in place due to the lack of willing/sufficiently qualified Next Gens to take over the reins. And, another 21% of the respondents believe the family has not invested enough time into succession planning.
Succession planning for family-owned businesses can be emotional, incredibly difficult, and has the potential of hurting family members’ feelings. Business owners need to put emotions aside, look objectively into the future, and put the best interests of the company top of mind. The best time to do succession planning is not when you need to, but when you can thoughtfully, objectively, and honestly make the tough decisions and have the hard conversations on who will best lead the company for future generations. A Reverie consultant can act as a guide and mediator during the process of succession planning.
All succession planning should begin with a family discussion. It is imperative that the entire family recognize how important creating a formal succession plan is.
From there, Reverie recommends to do the following:
Establish Goals - Identify the goals you have for your business, yourself, and your family. Communicate those goals to everyone who will be affected by the transition and ask for their feedback, suggestions, and ideas.
Identify Key Successors and Define Roles Responsibilities - Determine who will be the successors of the business. Find out who is interested in carrying on the family business and the skills they possess. Create clear roles and responsibilities. Mentor, guide, and train them to be ready when the transition comes.
Obtain an Independent Business Valuation - Find out how much your business is worth. The valuation can affect the transition plan you choose.
Explore Different Transition Options - There may be multiple options to transition your business. Explore each one and determine which option is the best for you, your business, and the successors.
Create the Succession Plan - Define what the transition plan is, how and when it will be enacted, and how each family/team member will be affected.
Communication - Communicate the succession plan to all interested stakeholders including family members, employees, etc.
For more information on how Reverie can help you develop a succession plan for your business, contact Reverie at thelab@findreverie.com.