HORSHAM, Pa., Feb. 1, 2016 /PRNewswire/ -- Owners of family businesses have faced numerous challenges the past several years and many are finally ready to exit their business. But how prepared are they, really? The answer may surprise you. A startling 65 percent of senior generation business owners lack a clear retirement plan, according to a new Family Business Survey conducted by Kreischer Miller, a leading independent accounting, tax, and business advisory firm serving the Greater Philadelphia area since 1975. More than half of those intending to retire have not established a succession plan.
The newly-released 2016 Family Business Survey, administered electronically over a three-month period, was comprised of survey data from approximately 100 privately-held businesses in the Greater Philadelphia region, including southern New Jersey and northern Delaware. The largest pool of respondents, 40 percent, identified their companies as second-generation family businesses. The majority of survey participants work in manufacturing, the service industry, distribution, and construction.
Companies generating revenues up to $50 million made up 67 percent of respondents. Those generating more than $50 million made up the remaining 33 percent of survey participants.
Eyes toward Retirement…and the Next Leader
A resounding 62 percent of senior generation survey respondents are eyeing plans to retire within the next ten years. Survey data, however, points to the fact that wanting to retire and preparing to retire are not aligned.
- Fifty-one percent of senior generation respondents do not have a succession plan in place, saying that they were "still figuring it out" or "unsure of what to do."
- Sixty-five percent reported that the senior generation business owner does not have a clear retirement plan.
- While 55 percent of respondents intend to transfer the business to a family member, only 37 percent have a plan in place to develop the skills of the next generation of leaders.
- Almost half of the respondents indicated they had no emergency plan in place for unforeseen circumstances.
According to published findings from the Family Business Institute, only 30 percent of second generation businesses succeed following a transition. Third generation businesses have a success rate of a mere 12 percent.
"This data clearly demonstrates that there is an essential need for family businesses to plan ahead and navigate through plans and processes years before the senior generation business owner is ready to retire," explains Steven Staugaitis, CPA, a Director of Audit & Accounting at Kreischer Miller and a family business specialist with the firm's Center for Private Company Excellence. "However, our Family Business Survey shows this planning is not occurring."
Keeping It in the Family
Data from Kreischer Miller's Family Business Survey shows that family businesses generally prefer to keep ownership in the family, though recognizing the importance of finding other ways to attract and retain non-family executives.
- Seventy-seven percent of respondents indicated that only family members are permitted to have ownership interest in the company.
- There is an expectation among 56 percent of respondents that family members work in the business before they become an owner.
- The most common method cited to compensate non-family executives in addition to salary was bonuses (64 percent), followed by life insurance (36 percent).
Strategies for Moving Succession Planning Forward
Kreischer Miller offers the following pointers for current owners looking to transition:
- Identify motives, desires, needs, and expectations for the transition.
- Be flexible in transfer strategies.
- Think about what life will look like – both financially and emotionally – after the transition.
- Seek good advisers to help ease the transition and offer insight from past experience.
Kreischer Miller also advises tackling this issue the sooner the better. "We encourage our clients to allow ample time to go through the process, in the range of 7-10 years. But if they have a shorter time horizon, we can still help them create a solid plan that will work for the departing owner and for the business," Staugaitis said.
When transitioning, Kreischer Miller recommends that successors emulate not imitate the preceding owner. Seeking out experienced mentors is also recommended.
Contact: Leza Raffel
SOURCE Kreischer Miller