Family Business ? Shifting Generations
Who in your organization will open a useful dialogue?
The furniture retailer seated in my office had spiked hair and rode into town in a pickup truck. He spoke excitedly about profit margins, inventory turns and his online strategy. Just listening to him speak, someone might assume that he was wearing pin stripes, seated in a leather wingback and wearing wingtip shoes. But it would have been a mistake for anyone to judge him by his appearance or his youth, because this man had single-handedly led the family?s furniture store during the two biggest months in their 50-year history, and this while the owner, his father, was in Florida.
Two out of five family businesses will transfer control and assets to the next generation in the next ten years. This is according to James Olan Hutcheson of ReGENERATION Partners. The following sobering statistics for independent business owners will make this generational transfer difficult for some of their inheritors:
- Over the next 20 years nearly $4.8 trillion of wealth will be transferred to the next generation of heirs.
- One in five retailers lost money on average during the last two decades.
- One in four private companies had income of less than $10,000 pre-tax per year on average during the last two decades.
In the late 1990s, Arthur Anderson and the Illinois Retail Merchants Association conducted in an extensive study of over 1,500 of the association?s members. Many owners were quoted as saying, ?Success is increasing profits, and we are not,? or ?I should be earning more based on the hours I give to this company.? These are not uncommon sentiments in today?s retail furniture environment.
So whether you run a highly successful business, or you are working long hours for unsatisfying compensation, here?s what you need to know to start to successfully transition your business to the next generation.
When Preparedness Meets Opportunity
Most family businesses are not prepared to handle the tidal wave of wealth transfer. In fact, the majority of family businesses have made few or no provisions for turning them over to the next generation. One problem is that most healthy and active family leaders find it difficult to envision their own retirement or, worse, death. Another is that the challenges of family-business succession tend to be barbed and bristly. It?s easy for business leaders to accept their seniority when purchasing a life insurance policy. It?s more difficult to engage in the sort of personal soul searching, family dialogue, and complex financial planning required to prepare for succession.
Generational Transfer Defined
- In the context of this article, the term generational transfer is used to describe an organization-wide change such as:
- A change in mission.
- Restructuring operations.
- New technologies.
- Major collaborations.
- New programs such as 6-Sigma.
- The change of leadership at the top because of generational transfer.
It designates a fundamental and radical reorientation in the way the organization operates. It does not include smaller changes such as adding a new person, modifying a program or adding a product category.
What Provokes Generational Transfer?
Usually generational transfer is provoked by some major outside driving force such as:
- A substantial downturn in sales volume.
- The need to address major new markets.
- The need to increase productivity.
- The aging of today?s small business owner.
Typically, generations must undertake organization-wide change to evolve to a different level in their life cycle, such as going from an entrepreneurial organization to more stable and planned development.
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