Findings from a recent nationwide survey offer a fresh look at family business* in the US today.
Only one quarter (24%) of family business owners do not want their ownership position in the business passed on to a relative. The majority (65%) wish to see the family ownership continue; of these, about half foresee doing so within the next ten years.
There is a lack of preparation for ensuring the continuance of family ownership. Almost three-quarters (74%) of business owners intending to pass on the family business to a relative do not have a written succession plan; only 54% have chosen a successor. Age increases the likelihood of a written succession plan. Two-fifths of those 65 or older have a plan, compared to one-fourth of those 50-64 years of age.
Management practices of family businesses point to an informal approach. Of businesses surveyed, less than half (42%) have written business plans or hold regular board meetings. The management practice most commonly implemented is a formal and regular employee review process (59%).
Six out of seven family businesses that have chosen a successor have named a family member. The successor (in the case of 65% of family businesses surveyed) will be prepared/educated for the role by on-the-job-training.
Thirty percent report having no trusted business advisor outside of the family. Accountants are the outside advisors relied on most frequently. The type of advisor used with least frequency (3% or less) is the category of “family member not in the business.”
Increasing profitability of the business is a key goal for 89% of family business owners; expanding the size of the business is key for 37%. Near the middle (63%) is the goal of reducing the debt level of the business.
Thirty-five percent of businesses were started by a previous generation, and 17% go back two or more generations. The wealthier respondents (with household incomes of $250,000 or more) are more likely than other family business owners to report a long entrepreneurial family history.
In 49% of family firms, the spouse is involved in day-to-day operations. The son of the business owner is twice as likely as a daughter to be involved in this capacity. Also associated with gender is this finding: female family business owners are more likely than their male counterparts to have their spouse involved in the active management of the business.
Over 21% of businesses rate operating cash flow among their most important sources of capital, and another 63% consider it very important. Most family business owners say they have either excellent (44%) or good (35%) access to capital. Ratings improve as household income increases.
Eighty-three percent of the owners of the larger family businesses (those with more than 250 employees) intend to pass on their stake in the business, but only 10% of businesses in this size range have a written succession plan.
For this survey, a family business is defined as one wherein the family members are employed in the daily operation of the business; the owner intends to pass on his or her ownership position to a close relative or relatives; the owner considers the operation to be a family business.
Research provided by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111.