Litigation + Valuation Perspectives

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Lack of succession plans in family owned businesses

business, succession plansAccording to a recent PricewaterhouseCoopers (PwC) report, only 23% of family owned businesses have succession plans in place that include a documented plan, not just thoughts in the owner’s head. In PwC’s 2012 survey, 52% of family run businesses planned to pass the business to the next generation, with only 12% planning to sell the company to an outside party. In the 2016 survey, that percentage planning to keep the business in the family was down to 41%, with 30% now planning on selling to an outside party.

The reason seems to be in large part a reluctance to pass the reigns to the next generation. Owners have indicated that the complexity of the family run business adds complexity to the family dynamic. Owners are hesitant to choose one child to run the business over their other children, fearing the choice will be seen as playing favoritism.

Founders of the family business may also worry that their vision does not resonate with the next generation. What will happen when the founder steps down? Will the company continue to burn as brightly as it had under the founder’s watchful eyes?

Regardless of the age of the owner, family owned businesses need to have succession plans in place. Companies owned by the third generation or more have realized that adequate succession planning is paramount to the long term success of a company.

Melissa E. Loughlin-Sines, CPA, CFE, CFF, CVA, ABV