Four out of five family-owned businesses in the United States are not ready for succession, according to a new study by the accounting firm Baker Tilly.
The study, Succession Reset: Family Business Succession in the 21st Century, identified several of the main challenges faced by family business owners. Those 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.
"For family owned businesses, it can no longer be assumed that the eldest child will take over the leadership of the business when the parent is ready to retire," said Mark Smith, a partner in Baker Tilly's private client group, in a statement. "Having a succession plan in place can help ensure the transfer of knowledge, skills and wealth are taken into account to maintain business continuity and to preserve the capital value of the business."
The study noted that approximately 73 percent of those surveyed do not see a compelling rationale to pass their business to a family member and would consider a sale of the business. Baker Tilly research indicated that, as baby boomers exit management and control, family businesses valuing trillions of dollars will change hands over the next decade. If this transition is not managed well, there will be significant impact on global economies.
Continuity of the business, family harmony and sustaining ongoing jobs for employees are some of the primary outcomes sought in the succession process, the study noted. "Beginning succession planning as early as possible, well before retirement, can help prevent challenges related to family harmony," said Smith.
Conflict in the succession planning process is higher in the U.S. and daughters do not have the same level of support to move into senior executive roles as their peers in other parts of the world, according to the study. Only 10 percent of U.S. respondents reported the next top executive would be a daughter, compared with 19 percent on a global scale.
Let our team at Complete Financial Services help you develop a succession plan for your business today!
Credit: Accounting Today