Another FAMbassador sent me the McKinsey article by Ken Yearwood “A generational shift in business ownership is underway” which quickly gets to the point: “Over the next decade, there will be more retirements per year in the United States than ever before. A huge number of retirees are owners of small and medium-size businesses. Most do not have clear succession plans.”
Generally speaking from a public policy perspective, there are four buckets of businesses facing the Great Ownership Transfer:
- First are “prepare now” areas, where the enterprise value at risk is high relative to GDP, but the retiree population isn’t that large yet.
- Second is the “act now” group, where both the retiree population and the business value at stake are high—a situation more common in smaller states where the impact is imminent.
- Third are large states that have significant absolute numbers of aging owners and high enterprise value, but where both are smaller relative to the overall population and GDP. Here, there’s an opportunity to scale existing transition solutions.
- Finally, there are regions with a high share of retirees but a relatively low enterprise value at stake. In this case, the priority is protecting continuity.
Why is this so critical? “For generations, homeownership has been viewed as the primary pathway to wealth. Business ownership may represent an equally— if not more—powerful path for the next generation. This transition will determine who gets access to that opportunity next.”
Each family situation is obviously unique, yet it’s easy to see where Mom and Dad’s business fits into one of the categories above. Have we asked Mom and Dad what they want to do? Have they mapped out a plan? Do they expect the Next Generation to run it? Does the Next Generation want to do that? And if not the Next Generation, who? Is the business in good shape where it can be valued and sold?
We openly discuss how to transition businesses all the time. When are we going to start viewing the family business and the business of the family in the same manner? Proper documentation. Proper accounting of assets and liabilities. Proper disaster planning. We can help ourselves and help our families move forward…