It amounts to a lot of varied interests, with a lot of specialized issues to deal with. But there are also common issues that run through practically all the privately held businesses, with one issue in particularly standing out: succession planning.
“Everyone agrees that succession planning needs to begin early,” Blowers said. “But in family businesses, owners are so busy and singularly focused on driving their business, they often don’t do that.”
Hence, succession planning is an area where family businesses frequently stumble, often in ways that lead to the dissipation of family wealth and the businesses themselves.
That’s why the loss of family wealth from generation to generation is such a familiar issue in the advisory industry. Northern Trust’s in-house research confirms the trend, showing that 30 percent of family businesses make it to the second generation, 12 percent to the third and only 3 percent to the fourth, according to Blowers.
It’s an important issue, and one that cries out for advisor intervention. Northern Trust, for example, urges its clients to make plans for succession up to 10 years prior to any expected transitions, Blowers says.
The trust company also encourages clients to identify who in the next generation should be prepared to take over businesses. If there is no one in line, which is often the case, planning may involve planning for a sale of the company or the appointment of an outside person to handle business operations until a family member is identified, Blowers says.
Of course, that doesn’t always happen. Indeed, the trust company often sees expert business people who handled transitions by the seat of their pants.
“Former business owners often tell us they didn’t intend to sell the business when they did,” Blowers said. “Rather, they got an unsolicited offer and they decided to sell.”
That can be an unfortunate situation for a business owner because it means he or she can’t do efficient tax and philanthropy planning in conjunction with the sale. Sudden sales also often mean poor valuations and short-changing children in the next generation, Blowers added.
In the current environment, with so much private equity activity, business owners want to avoid such situations because it’s a sellers market, he said. “There’s a lot of money chasing deals right now,” Blowers said. “Right now it is better to be a seller than a buyer.”