The Exit Strategy

In the 1980’s, the Family Firm Institute did a study showing that about 30% of all family-owned businesses survived into the second generation; about 12% made it to the third generation; and only 3% survived through the fourth generation and beyond.

I don’t think these statistics are reality today. In fact, at least for the small to middle market, I’d be shocked if more than 10% of family businesses are now transferring to the second generation.

We’ve looked behind the curtain of hundreds of family businesses over the last few years. And in at least 90% of the companies, neither generation were positioned to take part of a transfer. Here’s what we see:

Parents

• Don’t really understand the global economy…just see risk of ownership going forward
• Don’t totally trust their kids to own/operate the business going forward
• Can’t get their minds around how to fairly treat siblings who are not involved in the biz
• Don’t want to leverage the company to do a transfer
• Still often view/treat their kids as 6 year-olds

Kids

• Are making $150,000+ a year and getting home in time to have dinner with their kids
• Figure that when the business is sold they will eventually get the cash anyway
• Don’t fully understand/trust the global economy
• Don’t really want to leverage the company to do a transfer and be stressed over a mountain of debt
• Often view/treat their parents as authoritarian and out-of-touch with reality