Strategies for Enhancing Family Business Succession to Bolster the Economy

New York – Family businesses, crucial to the economic landscape, contribute significantly to GDP and job creation in the United States, accounting for 64% and 78% respectively. Despite their substantial impact on local communities and resilience through economic cycles, these businesses often struggle with longevity, with only a fifth surviving beyond one generation of the founder. A comprehensive study, “The North America Family Business Report 2023” by Campden Wealth in partnership with Brightstar Capital Partners, sheds light on this paradox.

According to World Economic Forum, a major factor contributing to the fragility of family businesses is the lack of formal succession planning. The study found that 61% of family businesses do not have a formal succession plan, even though nearly half of them consider managing succession a mid-term objective. This lack of planning is often due to the assumption that the next generation will naturally inherit the same passion for the business.

The report suggests three key practices for successful family business succession: having a formal plan, involving the next generation, and engaging a variety of stakeholders.

Formal Succession Planning: Research indicates that formal plans significantly aid in managing major transitions and changes. For family businesses, creating a formal succession plan is essential, even though it may initially bring latent family tensions to the surface. Such planning is crucial for minimizing disruption during the inevitable transition of leadership.

Involving the Next Generation: Active involvement of the next generation is critical. The report highlights that while founders often view successors as unready, the younger generation is generally committed to sustaining the family business. Their insights, particularly in digital transformation, can be invaluable in strengthening the business.

Engaging a Variety of Stakeholders: Input from a broader range of stakeholders, including advisors, potential investors, community members, and multi-generational employees, can provide new perspectives and clarity on succession options. Constructive dialogue facilitated by advisors can lead to positive solutions, while investors can aid in formulating business visions and filling management gaps.

The World Economic Forum’s family business community exemplifies the benefits of multi-stakeholder dialogue, offering valuable insights and connections, particularly in legacy and impact discussions.

Brightstar Capital Partners, through their work with family businesses, have observed that those adopting these three practices generally navigate succession more effectively than their peers. The successful transition of leadership in family businesses not only has immediate economic benefits but also contributes to a more robust and resilient economy.