Expectations were set but transitions from Baby Boomers to the next gen have not materialised. Dozens of articles came out during the 1990’s about the coming tidal wave of business transitions from Baby Boomers to their Gen X and Gen Y children. The articles theorised that as Baby Boomers got to be 55 and older, they’d be looking to either sell their businesses or pass them on to their children.
The writers looked at the demographics and numbers of closely held businesses, and they theorised that somewhere between $10 trillion and $140 trillion of assets were going to be transferred from one generation to the next. Financial services firms, charities, law firms, and consulting firms all licked their chops at the prospect that all these business transitions would somehow need to be managed and facilitated in an orderly way. The question is: What has happened to the family business transition tidal wave? Wayne Rivers explores further.
Surely since all those articles were penned, some family businesses have indeed transitioned. However, the breathless predictions of a tsunami of family businesses moving from senior to junior generations simply hasn’t materialised. The demographers could not have been wrong; simple maths indicates they were not off that much in terms of the ages of the baby boomers. If there wasn’t a chronological mistake, then, why hasn’t the tidal wave come to pass?
We believe there are six reasons why family businesses are staying in the hands of senior generation family business owners longer.
1 - Age 65 Is The New 50
A 65 year old family business owner today isn’t nearly as old at the same age as his father was. People today are in better health for longer than ever before. We eat better, exercise more, smoke less, and take care of ourselves better than previous generations. Therefore, when a family business owner reaches 'normal retirement age,' he is often far from ready to retire. He is still filled with energy, ideas, ambition, and there are so many exciting things left to do!
2 - The Great Recession
The Great Recession shocked many family businesses, some of whom believed the hype that the Federal Reserve had made recessions obsolete. Now, their businesses from somewhat to a great deal smaller than they were before, senior generation leaders see much which needs to be done to restore the business to its former glory. Leaving the business at the tail end of a historic recession simply doesn’t seem like a good idea to many.
3 - Lack Of Ownership Succession Plans
The state of family business estate and ownership succession planning is far better than it was when we started The Family Business Institute 23 years ago. However, many families still wrestle with the issues of ownership succession. How do I treat my children fairly and equitably when I have some in the business and some who don’t work here? How will my children get along when I’m no longer around? Is it fair to treat my daughter who is the CEO the same as her brother who works on the loading dock with respect to ownership succession? If I leave the company in the hands of my children, will my spouse have enough money to be comfortable after I’m gone? Many family business owners have undertaken to wrestle with these questions. Many others have not, and the questions aren’t any easier to answer now than they were 23 years ago.
4 - Lack Of Management Succession Plans
It’s hard to beat experience. Even though a 65 year old family business leader might have incredibly competent forty-something children, they are at a severe chronological disadvantage in the sense that the senior generation had a 20+ year business head start, and that gap can never be closed! While the younger generation might have all the tools necessary for future success, they simply can’t replace the hard earned experience Dad carries between his ears. Most closely held companies also have two other management succession limitations: a lack of clear, written, transferable policies and procedures for the various jobs in the company and a lack of Knowledge Transfer (KT) which is the process for formerly transferring soft information (i.e. someone’s experience about business practices and processes) to younger members of the firm.
5 - Lack Of Specific Retirement Plans For The Senior Generation
This item is related to item #1 above in that 65 year olds today have plenty of energy and ambition, and most family business seniors have no specific retirement plans remotely capable of consuming their energy and time. The idea of moving to a retirement community, puttering around in the yard, and maybe the occasional round of golf isn’t nearly as compelling and exciting as continuing to fight the daily battles necessary to put the family business back in its rightful place. Since murky retirement plans make for a nebulous future, and the concrete reality of rebuilding the family business is both present and exciting, staying trumps leaving hands down.
6 - Lack Of Buyers For Family And Closely Held Businesses
A few years ago I delivered a speech in Canada before which we had surveyed the attendees to learn more about them. Somewhere between a third and one half of the franchisees (who were involved tangentially in the new home construction business) said that when they reached retirement age they were going to sell their businesses.
Digging deeper into the demographics, we found that the average franchisee had one location with less than $2 million in gross sales. My message to them – which definitely put them on their heels – was that they couldn’t sell their businesses BECAUS