Only one-third (34%) of US family businesses say they have a robust, documented and communicated succession plan in place.
Family businesses have been the backbone of the global economy. There are many macro events happening at a rapid pace that make it nearly impossible to compete at a high level. Before the Internet, business was done with cash, handshakes and referral. That method, which was highly effective, has shifted to small and mid-sized businesses competing in landscapes they are generally unfamiliar with.
As consumer behavior changes, so does the family business dynamics. Those same consumers that make purchasing decisions based on what they see online are the same people that are next in line to take over the family business. When 56% of families are in alignment on a company direction, that should signal a problem for small business in general. So what happens with the future of M&A for small-midsized businesses?
There will likely be a windfall of service-based businesses with high quality books of business coming to market. Like many quality service companies, there may even be some sort of recurring revenue components to them. Think about the home services industry. It has a large total addressable market, very fragmented with many consumers seeking quality and consistency for one of the most valuable possessions. Many of these home service companies are and will turn over as the kids of these businesses no longer want to take over. They would rather get into the technology sector for example. Due to this shift, families need to plan for this trend and be open to flexible financing structures that allow a new owner to come in, purchase the business with an earn-out structure and keep that brand alive and thriving.
Creative financing for the buyer and willingness of the seller need to happen in order for these high quality businesses to be transacted. Given these small companies create 1.5 million jobs annually and account for 64% of new jobs created in the United States, there is a lot at stake and families need to start planning before it's too late.
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