This article was published by CMC-Canada in the Winter, 2019 edition of Consult
The Top 4 Threats to your Family Business in 2019
There is something more, however, that business leaders need to be concerned about; something that could impact the future of both their company and their family’s wealth, and it is simply this: Family businesses are facing the most explosive challenge in a generation. The reason? Seldom have so many potential threats been evident in our external environment, many of which make headlines on a daily basis. Consider the following:
- Demographic factors. Experienced advisors know that the majority of aging business owners do not have a succession plan and research has supported this finding over the years. They also do not fully appreciate the reality that there are a limited number of potential successors, in terms of those who have the necessary skills, interest, and capital to take over a company. This fact alone has the potential to halt business transition in its tracks.
- Disruption of key industries. The manner in which we live has, and continues, to change. Consumers and companies procure goods and services differently than in the past, resulting in the need for new and complex business models, many of which are supported by rapid digital and technological advancement. Companies that do not keep up with marketplace expectations not only face declining demand, but also the risk of obsolescence, in terms of transition to someone else. This can be a sobering and disappointing reality for many business leaders.
- Significant change in the global economy. The daily headlines in our world are often characterized by widespread change, including in areas such as trade, tariffs, political alliances, and business requirements. This ongoing evolution brings uncertainty, with the potential to significantly impact a company’s planning efforts, financial results, and valuation upon transition.
- Uncertain financial times. Recent tax changes in a number of areas have generated many questions from family business leaders, impacting areas such as income distribution and investment opportunities. When coupled with increasing interest rates, accessing the capital that is so integral to business growth and transition strategies could become increasingly difficult, a challenge that especially impacts young entrepreneurs and potential successors.
Any one of these developments can have a significant impact, but when combined, it could create a situation that is impossible for an unprepared company to overcome. When these areas are considered in the context of typical family business problems, the stage is set for unprecedented challenge; one that impacts families, companies, and Canada’s business community as a whole.
The reality, however, is that many business leaders are unaware of the degree to which these factors have developed, often as a result of not spending a sufficient amount of time to fully understand the external environment, including industry and market trends and developments. Since this is clearly a critical time for business leaders and their families, Evelyn Jacks and I decided to write our latest book, Defusing the Family Business Time Bomb. This isn’t just another “family business book”; rather, it brings a common-sense approach to addressing the many challenges that are associated with building a company that has the potential to be sold to someone else in the future, all during highly uncertain times.
Here’s a final thought: As business leaders in great numbers face retirement, it is only the well managed and strategically positioned companies that will have relevance in the future, enabling them to be transitioned to someone else for a “good to great” level of value. This stark reality is something that must be recognized by both founders and successors alike.