Ownership transition should be a central topic in your planning if you own a business. According to a survey conducted by MassMutual Life Insurance Company, family-owned businesses have their own unique needs and challenges. Here are some of the key conclusions and discoveries.
One of the most important discoveries of the survey was that 80% of family-owned businesses are still controlled by the founders. The survey also found that 90% of family-run businesses intend to stay family-owned in the future.
Lack of Leadership Plans
Another area of interest is leadership. Approximately 30% of family-owned businesses will change leadership within just the next five years. Furthermore, 55% of CEOs are 61 or older and have not chosen a successor. 85% of the time, when a successor has been chosen, that successor is a family member. 13% of CEOs stated that they will never retire.
Failure of Proper Valuations
Valuation is another surprise area according to the survey. 55% of companies fail to conduct regular evaluations, which means they don’t know the true value of their company. Adding to the potential confusion is the fact that 20% of family-owned businesses have not completed any estate planning and 55% of family-owned businesses currently have no formal company valuation for estate tax estimates.
Lack of Proper Strategic Plans
The financials for family-owned businesses are often just as foggy as their succession issues. The survey also discovered that 60% of family-owned businesses failed to have a written strategic plan and a whopping 48% of family-owned businesses were planning on using life insurance to cover estate taxes.
Simply stated, many family-owned businesses are not organized properly and are not fully taking advantage of their opportunities. Family-owned businesses are frequently narrow-minded in their approach to a wide range of vital topics ranging from succession and leadership to valuation, planning and more. In the long term, these vulnerabilities may serve to undermine the business making ownership transition harder when the time comes. Family-owned businesses are strongly advised to work with professionals, such as experienced accountants and business brokers, to ensure the long term profitability and continuity of their businesses.