According to research by the Family Business Institute, 88% of current family business owners believe the same family or families will control their business in five years’ time. In reality, about 30% of family businesses survive into the second generation, 12% are still viable into the third generation and only about 3% operate into the fourth generation or beyond. The statistics reveal a disconnect between the optimistic beliefs of today’s family business owners and the reality of the failure of family companies to survive through the generations. The research indicates that family business failures can essentially be traced to one factor: an unfortunate lack of efficient succession planning.
There is no doubt that succession planning can be stressful for family-run businesses to address. However, the absence of such planning can hold back growth and make it more difficult for businesses to generate new ideas for future success, which can also damage the wider local economy through loss of jobs, knowledge and expertise. Instances of family members taking the majority of the senior management positions often result in an unintentional glass-ceiling effect, acting as a barrier to the development of non-family personnel and ultimately business growth.
Planning for succession well in advance can help overcome these hurdles and enable the company to continue to grow and to attract top talent. Succession planning is not all about selling the business to another company; there are other options which can be explored with the support of expert third party advice.
Laurence Whitehead, corporate finance partner, comments: “There are several succession options other than a sale to a trade buyer. These include a phased management buyout or buy-in, a cash out using externally sourced finance and, in some cases, an initial public offering on one of the UK’s listing exchanges. Many family-run businesses would flourish under new leadership, be it a family member from the next generation, the incumbent management team, an outside buyer, or even a mix of all three; the key to success is for the current owners is to bite the bullet and engage with experts early in the planning process so that the merits of each option can be analysed and progressed as appropriate. A little bit of investment now in time and money can often prove to be a positive game changer later down the line.”
M&A strategic planning with an experienced facilitator can help you put together an effective succession plan as part of your overall business strategy. A good facilitator will look at how your business works and help you to identify and optimise unique selling points and key business drivers.
Laurence concludes: “The overriding aim is to maximise shareholder value and ensure a smooth transition in the ownership of the business.”
For more information email Laurence.email@example.com or call 01908 662255