4 Factors Affecting Ownership Transition

If you own a business, ownership transition should be a key part of your planning. A few years ago, MassMutual Life Insurance Company conducted a thought-provoking survey of family-owned businesses. Obviously, family-owned businesses have their own unique needs and challenges. The MassMutual Life Insurance Company survey underscored this fact, providing valuable information that is still relevant today. Let’s take a closer look at some of the key conclusions and discoveries.

Founder Control

One of the survey’s most important findings was that 80% of family-owned businesses are still controlled by the founders. The survey also discovered that 90% of family-run businesses intend to stay family-owned in the future.

Lack of Leadership Planning

Leadership is another area of great interest. Strikingly, approximately 30% of family-owned businesses will change leadership within the next five years. Moreover, 55% of CEOs are 61 years of age or older and have not chosen a successor. When a successor has been chosen, that successor is a family member 85% of the time. Succession is often a murky area for family-owned businesses. Thirteen percent of CEOs stated that they will never retire.

Lack of Proper Valuations

According to the survey, valuation is another surprise area. Fifty-five percent of companies fail to conduct regular evaluations, meaning that they are essentially “flying blind” with regards to 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 Planning

The financials for family-owned businesses are often just murky as their succession issues. The MassMutual Life Insurance Company survey discovered that 60% of family-owned businesses failed to have a written strategic plan and 48% of family-owned businesses were planning to use life insurance to cover estate taxes.

The reality is, many family-owned businesses are not organized properly and are not fully taking advantage of their opportunities. Family-owned businesses are frequently insular in their approach to a wide range of vital topics–from succession and leadership to valuation, planning, and more. In the long term, these vulnerabilities may undermine the business, making it harder to sell when the time comes, or opening it up to other problems and issues. Family-owned businesses are strongly advised to work with professionals, such as accountants and merger and acquisition advisors, to ensure the long-term profitability and continuity of their businesses.