Study Finds Four Out of Five US Family Business Owners Are Not Succession-Ready
20 Jul 2015
Baker Tilly International calls on family owned businesses to begin succession planning early to avoid business disruption and loss of capital value
NEW YORK – Research conducted by Baker Tilly International found that four out of five US family business owners are not succession-ready. According to the study, Succession Reset: Family Business Succession in the 21st Century, key challenges faced by family business owners include being ready for transition or market sale, and ensuring that the business has the financial capacity to support both retirement and the next generation.
“We’re in a new era of succession. The notion that the eldest child is going to take over the business when the parent is ready to retire is not a viable option for the continuity of family owned businesses”, said Carl Johnson, chairman of the North American Regional Advisory Council of Baker Tilly International. “Succession today is just as much about the transfer of knowledge and skills as it is about the transfer of wealth. This is because the level of skills required to effectively run a business in today’s environment is far greater than it was in previous generations. If business owners haven’t helped the next generation develop these skills, the capital value of the business is going to be impacted. If a skills gap causes a vacancy in leadership, then it’s going be hard to maintain the desired business continuity”.
The study noted that approximately 73% of those surveyed do not see a compelling rationale to pass their business to a family member and would consider a sale of business. A generational shift is occurring that has not been experienced before as baby boomers exit management and control. The size of the family-business sector means that if this transition is not managed well, the impact on global economies will be significant. “Family businesses valuing trillions of dollars will change hands over the next decade as the baby boomer generation pass on their businesses. Many of those retiring currently have no succession strategy. If this transition is not managed well, the economic impact on will be significant”, said Johnson. “Succession planning at retirement is too late. The process needs to be a component of an overall business strategy".
According to the study, continuity of the business, family harmony and sustaining ongoing jobs for employees are key outcomes sought in the succession process. However, US respondents ranked the maintenance of family harmony as less important than the rest of the world. Tellingly, a materially higher rate of survey participants reported substantial conflict during the succession process in the US as against the rest of the world.
“The hardest part of any succession process is family harmony but it doesn’t have to be”, said Johnson. “Creating a governance structure can make the journey of succession easier”. According to the report, the US lags behind the rest of the world in their use of governance for succession planning.
In the rest of the world spouses were considered the most important advisors in reducing conflict related to succession planning as opposed to the US respondents who focus on the importance of using consultants, accountants and attorneys to help move the process forward.
The full copy of Succession Reset: Family Business Succession in the 21st Century Report 2014 is available on this link.
Media contact: Beth Jarecki, Luther Pendragon USA, T: +1 917 364 6044, firstname.lastname@example.org
About the research
- The Baker Tilly International Succession Reset: Family Business in the 21st Century Report 2014 has been undertaken by some 2,650 persons across 56 countries in nine languages.
- Generations in the business included 45% first generation, 45% two to three generations, and 10% three or more generations.
- Of the respondents surveyed, 9% were greater than 67 years of age, 35% were less than 49 years with 56% baby boomers between the ages 49 and 67.
- Males represented 80% of respondents and 20% were female.
- 36% of respondents were from North America; 28% Europe, Middle East and Africa; 27% Asia Pacific and 8% from Latin America.
- The survey focused solely on the issue of succession and is not part of a general family business survey. It is structured to focus on the dynamics, barriers and success strategies experienced in a succession process. It considers respondents’ experiences from the three perspectives of having completed a succession process, in the midst of a succession process and not yet commenced and, therefore, provides alternative perspectives of how experience varies across the journey of succession.
- There is no connection between the client and their individual responses and therefore all responses remain confidential and anonymous.
- The conduct of the survey is subject to the ethical oversight by Swinburne University of Technology in partnership with Baker Tilly Pitcher Partners in Melbourne, Australia.
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