Nearly four out of five family owned businesses are not prepared when current management retires, a new report says, indicating there is a major succession-planning gap for many U.S. and Connecticut companies.
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Nearly four out of five family owned businesses are not prepared when current management retires, a new report says, indicating there is a major succession-planning gap for many U.S. and Connecticut companies.
The report by accounting firms BlumShapiro (West Hartford) and Baker Tilly International (London) found that key challenges faced by family business owners include being ready for transition or market sale, and ensuring that the business has the financial capacity to support both retirement and the next generation.
And those issues come at a time when a major generational shift among family businesses is about to hit, as Baby Boomers inch toward retirement and exit management and control.
The size of the family-business sector means that if this transition is not managed well, the impact on state, national and global economies will be significant, the report said.
“Family businesses valuing trillions of dollars will change hands over the next decade as the Baby Boomer generation pass on their businesses,” said Carl Johnson, managing partner with BlumShapiro and chairman of the North American Regional Advisory Council of Baker Tilly International. “Many of those retiring currently have no succession strategy. If this transition is not managed well, the economic impact on will be significant.”
Johnson said this is a new era of succession planning in which the notion that the eldest child is going to take over the business when the parent is ready to retire is not a viable option for the continuity of many family owned businesses. In fact, 73 percent of the 2,650 U.S. and international business owners surveyed said they do not see a compelling rationale to pass their business to a family member and would consider a sale instead.
Johnson also said the key to succession planning today is just as much about the transfer of knowledge and skills as it is about the transfer of wealth.
“This is because the level of skills required to effectively run a business in today's environment is far greater than it was in previous generations,” Johnson said. “If business owners haven't helped the next generation develop these skills, the capital value of the business is going to be impacted. If a skills gap causes a vacancy in leadership, then it's going be hard to maintain the desired business continuity.”
According to the study, business continuity, family harmony and sustaining ongoing jobs for employees are key outcomes sought in the succession process.
— Greg Bordonaro
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