Generational Business Transfers Are The Exception, Not the Standard

Earlier this year we published an article correlating owning a business to a Rubik’s cube. Every decision that you make as a business owner is like twisting and turning the cube into a new configuration.

All the twists and turns made over the years have led you to the business that you have today.  But, is that business something that someone else will be able to understand when you wish to transition out?  Or, will you simply be handing over a Rubik’s cube that cannot be solved, setting your successor up for failure?

According to the 2015 US Family Business Survey by accounting firm PWC, 74% of business owners anticipate passing their business on to the next generation, while 19% anticipate selling the business to a third party, and the remaining 7% are uncertain of their exit strategy.

As an investment banker, I know that these statistics are not reality.  While 74% of business owners may dream of transitioning their business to the next generation, many will end up selling to a third party, driving that metric far north of 19%.  The reasons for this vary.  Some owners may fall ill at a time when their children are not yet ready to take over the business; others will have children with different passions that don’t want to take over the family business.  Regardless of the reasons, significantly more than 19% of the business owners surveyed will ultimately sell to a third party.  The big question is which ones?

Unfortunately, there is no way to tell.  As the saying goes, “life happens.”  As you know, when “life happens”, plans change.  When those plans change many business owners will be left in the unfortunate situation of owning a business that is not saleable.  Why?  Because they ran it with the expectation that their children would take over.

Whether you plan to sell the business to a third party or transition the business to the next generation of your family, do yourself and your kids a favor… operate the business as if you were planning to sell it.  This will not only give you more transition options if they are needed, it will create a much stronger, more stable business for your children to own, operate, and grow should they elect to do so.