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Independent Business Broker and private intermediary

Transition Planning

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A Missing Element

Many business owners once dreamed of building a business that they could pass on to the next generation. However, a recent study on succession planning for U.S. family-owned businesses found that interest among owners to pass control of the company on to the next generation is waning. In fact, the study found that among family-owned establishments anticipating an ownership change within the next five years, only 52% plan to keep the business in the family — down from 74% of companies surveyed just two years earlier. This raised several major concerns for family-owned businesses, most importantly the need to properly establish value and a plan for transitioning business ownership.


An Uncomfortable Reality


My experience in working with family-owned businesses suggests that many business owners are uncertain about the value of their businesses and what a transaction might generate in a competitive sale process. This may be especially true for smaller companies with less than $3 million in annual sales. Most are understandably emotionally attached to a business they developed and that has afforded them a relatively comfortable lifestyle. As such, it can be hard to hear that the business isn’t as valuable, or easily transferable, as expected.


Invest In A Plan


If a change in ownership is really just five years away (or less), there are steps that owners should consider taking to prepare for the transition. Unfortunately, the statistics aren’t overly optimistic. According to recent survey results, only 23% of firms have a well-documented and robust transition plan in place — down from 27% two years ago — and nearly one-third have no plan at all. Further complicating matters is the potential that the next generation may not want anything to do with the business and key employees may have no desire to own a business.


Avoid The Stress


Ultimately, transitioning a business from one owner to the next (whether it’s family / employees or someone outside of the family) can be a stressful process. Identifying and correcting potential areas of concern that could prevent you from realizing your financial and family objectives is an important step in alleviating at least some of this stress.