INSIGHTS: FALL 2018 — PRESIDENT’S MESSAGE

By Ben Rand

Manufacturers everywhere are talking about the risks posed by their inability to find qualified workers. Some are worried about new technologies disrupting their industries. Lately, many are talking about the risks of tariffs or a trade war. But there is a huge risk looming, not only in manufacturing but throughout the economy, that is not being talked about enough—a historic, generational transition of business ownership. The numbers are absolutely mindboggling:

  • There are approximately six million privately held businesses in the United States. That’s 99.9% of all businesses.
  • These family-owned businesses account for 64% of U.S. gross domestic product.
  • They provide 62% of all U.S. employment, including 78% of all new jobs.
  • The problem is that 43% of family business owners have no succession plan in place.

If we apply those same ratios to WNY manufacturers, there are more than 650 privately held WNY manufacturers accounting for more than 17,000 jobs and almost $2.5 billion in gross domestic product with no succession plans in place. Worse, about 60% of those companies are owned by baby boomers 55-73 years old, meaning a transition is coming soon, if not already overdue.

Why should we care? Lack of a succession plan puts a company’s continuity at risk. If the owner retires, dies suddenly, or is forced to step away for health or other reasons, there may be no one ready to run the business successfully. The heirs may have to choose between dropping everything to take control of a company they are not prepared to run or selling off the assets for whatever they can get. If the business disappears, so do jobs and work for others—suppliers, accountants, lawyers, insurers, bankers, etc.—who support the business. These impacts ripple through the regional economy, making this succession crisis a concern for government officials and economic developers.

Making matters worse, a good succession plan typically takes years to reach fruition. In a best-case scenario, an owner has a smart, hardworking, only child who wants to take over. There will still be much to do to train him or her, strengthen the management team, prepare customers and vendors, structure the ownership transition, manage the tax impacts, etc. In reality, only a fraction of cases will be that easy, especially for companies that are already struggling or have multiple family members who don’t see eye to eye. The statistics are, again, troubling: about 33% of family businesses survive into the second generation, 12% into the third generation, and only 3% survive into the fourth generation.

The good news is that Insyte can connect you with talented, experienced resources who help manufacturers systematically work through their issues to structure a comprehensive, holistic, resilient, custom plan that can ensure maximum returns for the owner, a smooth transition for the business, and longevity for employees, stakeholders and the community. Do you have such a succession plan in place?

Source: Conway Center for Family Business

»