New Family Business Transition Readiness Quiz: Predicts a Historic Number of Company Failures

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The baby boomer generation will cause a historical number of Family Businesses to fail due to retirement selling and handing down the business to their kids. The new Business Transition Readiness Quiz, based on 25 years of research, can help privately held business avoid the pitfalls and succeed in transition.

The Business Transition Readiness Quiz, consolidates this research into an easy on line tool that highlights where owners need to take action if they want to successfully transition their business.

The number of baby boomer generation independent business owners who will soon be of retirement age is growing at a rapid rate.. AARP reports as of 2011 more than 7,000 people a day will be turning 65 years old in the United States. Globally, statistics have been reported as high as 125,000. These demographic trends will continue for the next nineteen years. “This will produce the largest historical number of business looking to sell or hand down their businesses to the next generation.” says Richard A. Morris principle of ROI Consulting Evanston Il. “And the number of these businesses that will transfer successfully is smaller than most owners think.”

According to the Family Business Institute, a closely held enterprise has less than a 30% chance of successfully navigating a succession to the next generation, with only 12% of these businesses making it to the third generation. “That is why we developed the Business Transition Readiness Quiz. It helps owners evaluate readiness for sale or succession to the next generation.” Morris also explains that “A transfer may happen at times other than planned, as none of us know when poor health may unexpectedly force an owner to exit the business.”

Morris has spent over twenty five years researching the pitfalls of privately held business succession. The research shows that a family business needs both continued growth in profit and market share as well as a governance structure that will manage the business, family members, shareholders, and employees. Written documents are also needed, such as a will, buy/sell agreement, minimum requirements (age/education/experience) for family members to join the firm, and successors identified for key management positions including the owners. “The Business Transition Readiness Quiz, consolidates this research into an easy on line tool that highlights where owners need to take action if they want to successfully transition their business.”

Business owners often do not want to think about retiring or selling. To many it is akin to thinking about death so they delay or not attend to these issues at all, putting their business at risk. For example, “85% don't have an exit plan” according to the The International Business Brokers Association. Morris points out that the number of business owners that don’t have a will or a plan to cover estate tax is about 50%. After taking the quiz one can see how they compare relative to others. Morris says “The goal of all business owners should be to achieve a “Yes” for all the questions, to increase the likelihood that a business will have value for the next generation or for a potential sale.”

Family owned businesses are the engine of the economy. The US Small Business administration web site reveals that small businesses (which are primarily owned by individuals and families), represent 99.7 percent of all employer firms, pay 44 percent of total U.S. private payroll, and create more than half of the nonfarm private gross domestic product (GDP).    Small privately held businesses also make up the majority of business found in purchasing cooperative, franchises and many associations. If there is a tidal wave of unsuccessful transitions, these business formats will suffer and the privately-held business landscape may be altered.

Richard Morris is principal of Evanston-based Resource for Ownership Intelligence known as ROI Consulting which helps family owners expand and pass down their business to subsequent generations. He also works with Cooperatives, Franchises, and Associations, offering family business education, consulting and strategic planning. Rich is an adjunct professor at the Lake Forest Graduate School of Management. His experiences also includes working at his family's 80-year-old privately held company, Fel-Pro Incorporated, managing Marketing and then Acquisitions, and serving on the Board of Directors until its sale in 1998.

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