According to a recent study by PwC’s Private Company Services division, just 23 percent of family-owned businesses have a formal succession plan.
One of the reasons might be the perceived difficulty of succession planning. Forty-four percent of the 160 business owners surveyed believe succession planning will be a challenge over the next five years.
In fact, about half don’t plan to pass the baton to the next generation at all. The study’s authors surmise that because of growing complexity, the family business has become more of a headache for its owners than a rewarding challenge.
You certainly can’t blame these business owners for wanting to cash out and free up a significant portion of their net worth. But I wonder whether they have made the decision harder than it needs to be. Yes, they will need to honestly assess whether the next generation is interested in the businesses, is ready to lead, or can be prepared to lead.
But they don’t need to reduce their options to “keep the company or sell it.” There are other options that might be the right choice for their business.
For instance, an owner could sell the company and agree to stay on and run it for a set number of years. This would put some cash in the owner’s pocket and protect his or her family and future retirement.
An owner might also want to retain a stake in the company. At the end of an agreed upon period, he or she would have a second opportunity to sell their remaining piece of the company, which potentially could be worth a lot more money.
If the children are interested in running the company but need some seasoning, a business owner might look for an investor who has deep business acumen and can mentor the children. It would be even better if that investor shared the owner’s perspective on what it takes to run a successful business and also respected the legacy of the company.
Regardless, if you are a business owner, you will need to learn more about your options soon. The M&A marketplace, like the economy, has been strong for eight years now. Most people think we may have a couple more years before the next recession. And it can take up to half of that time to actually sell all or part of your business.
At Allegiance Capital, we want you to know what you’re getting into when you sell all or part of your business. We view educating prospective clients as one of the most important things we do.
We like to begin our process by offering a free book called Street-Smart Moves for Selling Your Business by Joe Aberger. This small book addresses 29 topics that are critical to selling a business like yours. Be sure to Sign Up Now.
And, in the meantime, if you have questions, feel free to call me at 214.217.7732.
About the Author
David J. Mahmood
Founder & Chairman
Phone: (214) 217-7732