41% of Owners Plan Business Exit, But Many Unprepared

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— by Bill High

A recent UBS Investor Watch study notes that a whopping 41% of business owners expect to exit their business within the next 5 years. That business exit looks like the following:

  • 51% expect to sell

  • Only 20% expected to leave the business to family

  • 18% expected to shut it down

  • and 10% were unsure of their exit plans

While 65% of these owners were either ready to retire or believed conditions were favorable for sale, just 48% of these same owners had an exit plan in place.  Nearly 60% of these owners had never had an appraisal of their business.

The adage certainly holds true that while many are willing, not many are prepared.

(I lay out the process for a successful business exit in Sell Well, a book I co-authored with Peter Kubasek and Rene Robichaud to help private business owners and CEOs navigate the many issues related to the sale of their company.)

Once again, the continuing climate for business sales looks strong but the underlying truth is that many are not prepared. These owners need to seek counsel for those who can guide them through the process.

 

DON’T EXPECT YOUR KIDS TO RUN THE FAMILY BUSINESS

 The UBS Investor Watch study also presents statistics regarding family businesses and succession or exit plans. While some business owners desire their kids to take over the family business, many kids don’t share that desire.

82% of kids would rather have money from the sale of the business. Only 18% would actually want the business.

 On the other hand, business owners understand some realities about their children.

  • 89% acknowledge their kids aren’t interested in the business

  • 21% realize their kids aren’t qualified

  • 9% desire a different career path for their children

But whether the kids take over the business or sell it, owners list lots of worries related to a business exit and their kids:

  • 57% fear they’ll take the business in a different direction

  • 57% fear the sale to an outsider

  • 55% believe they’ll squander the profits

  • 52% believe they’ll fight over the money

The lessons from this study are what we’ve seen time and time again.  Family business is a great idea.  But few family businesses survive generationally—just 30% will survive into the second generation and only 15% or less into the third generation.

Successful generational family business takes careful transition, communication and planning—far more than just a casual handoff.

If you (or someone you know) owns a family business, here’s the takeaway from these numbers: don’t put off the planning, structures and practices that are essential to a successful transition from one generation of leaders to the next.

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