Dec 7, 2015

Guest Blog by David Romano, Benchmarkinc Founder

Eighty-eight percent of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. Only about 30 percent of family businesses survive into the second generation, 12 percent are still viable into the third generation, and only about 3 percent of all family businesses operate into the fourth generation or beyond. The statistics reveal a disconnect between the optimistic belief of today’s family business owners and the reality of the failure of family companies to survive through the generations. Research indicates that family business failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.  (Family Business Institute)

An increasing trend in the industry is that the next generation has no interest in continuing the family legacy because they witnessed the level of commitment from their parents and value “having a balanced life” more than owning a business.  Now let’s say that there is the interest from the next generation and that they are indeed equipped to assume the reins; these new entrepreneurs face a more complicated world than their parents did when they founded and built their businesses.  In contrast to publicly owned firms, in which the average CEO tenure is six years, many family businesses have the same leaders for 20 or 25 years; and these extended tenures can increase the difficulties of coping with shifts in technology, business models, and consumer behavior.  Couple these issues with the fact that the founder may still be actively involved, and the job of running a family business becomes monumental for the successor. (Harvard Business Review)

This information is not intended to shock or depress, it is meant to wake up or fire up restoration owners to come to the realization that now, more than ever, having a Succession Plan of when and how to sail off into the sunset is critical and taking the proper steps will minimize the risk of transition failure and increase the likelihood that outside investors will take a sniff.

Keep in mind that “Succession Planning” is a process, not an event. Even when the formal Succession Plan is in place, it must be a living, breathing and evolving document which is reviewed and updated from time to time to reflect changes in the marketplace, competitive conditions and the health or capabilities of the current leadership.  Building this plan should occur when owners still have enough “gas in the tank” to properly prepare those who will run the business or do their best to instill sustainable systems to make the business attractive to potential buyers.  Waiting until you cannot take it anymore and rushing this process is most likely going to lead to you having to reenter the business at a later date to provide resuscitation or draw less investor interest and/or a lower purchase price.