Family-owned businesses are a hot topic in our offices right now. A conservative estimate of 22,800,000 (or 95% of the 24 million small businesses in the U.S. today) are family-owned and they provide employment for at least 60% of all workforce. According to the Small Business Administration, Family-owned businesses are also responsible for 78% of all new jobs created. That’s a chunk of workforce. And while our mandate is to focus on small to medium sized manufacturers, Family–owned businesses are not synonymous with small or even manufacturing. In fact, 35% of the 500 largest companies in the U.S. are family-owned and that includes companies like Wal-mart, Comcast, and Cargill as well as manufacturers such as Ford, Mars and Tyson.
The sad realization is, that while approximately 65% are looking to transition ownership of those businesses, only 28% of them have a plan to actually do so. And of those 28% with the plan . . . only 35% successfully work that plan and successfully transition ownership to the second generation. By the third generation, that success rate drops to 12% and by the fourth, fuggedaboutit. Doing the math, that’s over 2.2 million companies lost in the first transition. . . .or by the fourth generation, just under 10,000 viable companies remain.
For Michigan, we’ve estimated that there are over 750,000 small businesses. If we estimate the same 95%, that’s about 712,500 family-owned Michigan companies, with less than 200,000 of those having a plan to transition the business. That’s a lot of at risk Michigan jobs. Add to that risk factor the 35% success rate . . . and a devastating number of companies and jobs could disappear overnight.
Even companies that survive the transition may suffer from other issues, if they execute the plans poorly. This can result in other consequences such as reduced performance, increased employee turnover, loss of market share, irreparable reputational damage, and negative impact on employee morale.
The development of a solid strategic and succession strategy is a critical part to ensuring that family-owned businesses thrive and that Michigan jobs stay in Michigan. Whether looking to sell the business or pass it on to the next generation, the successful execution of transition strategies: help business owners ensure growth, strengthen Michigan’s economy, and help business owners gain the return on their lifetime investment.
At the MMTC, we’re committed to keep jobs, revenue and businesses here in Michigan. Family-owned businesses often outperform the competition in revenue and employment growth, largely because they have a longer-term view of investment and tend to be more stable, inspiring trust and loyalty from both employees and customers.
The Family Business Advisory Program provided by the MMTC helps the owners of family and closely held businesses to navigate one of the toughest and most critical challenges they will ever face – planning for succession.
Whether you utilize our services or not, it’s important that as a family-owned business owner you begin TODAY to equip and empower your people, position your company, and prepare for a successful transition.
For more about MMTC’s program plan to join MMTC partners Morgan Stanley, Yeo & Yeo, and Rehmann, and special guest, The Galliard Group at the April 18th
Family Business Roots Run Deep Workshop. It begins at 1:00 and includes a networking reception at 4:30. Cost for attending is $49 per person.