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Surveying the Family Business

only 10% of bus. in this size range have a written succession plan

Findings from a nationwide survey offer a fresh look at family business* in the US today.

Finding 1. 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.

Finding 2. 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.

Finding 3. 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%).

Finding 4. 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.

Finding 5. 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."

Finding 6. 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.

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Finding 7. 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.

Finding 8. 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.

Finding 9. 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.

Finding 10. 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.

A public service of American Business Brokers