NEW ORLEANS – Nationwide and in New Orleans, it’s getting harder for family businesses to survive past the first generation of ownership, and that means smart small business owners should create a succession plan — or a plan to sell — as early as possible.
Five years ago, a report from the Family Business Alliance showed that 30% of family-owned businesses make it to the second generation, 12% make it to the third, and 3% make it to the fourth or beyond. More recent data from PricewaterhouseCoopers shows the numbers may be even lower.
These underwhelming figures are caused by several factors. First, there are many complications that arise when family dynamics overlap with money matters, and sometimes children’s vision for a business can differ substantially from a parent’s. These conflicts can create roadblocks to a business’s survival. But, according to the PwC survey, oftentimes the problem is just that kids just aren’t interested in the gig.
It’s common for children of small business owners to seek jobs in the outside marketplace — and sometimes they never come back. Studies show that millennials, in particular, value creativity and a flexible work environment over the stability that would come with taking over the family business. And those that do decide to work for the family business may envision it as a short-term project rather than a lifetime career.
All these factors are reasons why small business owners need to consider selling to an outside buyer. But there are dangers here, too:
The majority of businesses for sale never find a buyer. In fact, according to a multi-year study by the International Business Brokers Association (IBBA.org) and Pepperdine Grad School of Management, only two of five businesses listed for sale to an outsider are able to sell before being forced to close. And for those that do find a buyer, the process of finding a buyer and then the process of getting them to closing might take over a year.
This issue is exacerbated in smaller markets like New Orleans. Also, many of the businesses that are trying to get sold are coming forward way too late in the process. Many of them aren’t willing to commit to the necessary steps, and most hang on too tightly to a targeted sales price generated by an official valuation.
So finding a buyer for your business is no sure thing.
Fortunately, there are two types of professionals — business brokers and exit planners — that can help.
Business brokers are commercial real estate agents with a specialty in buying and selling businesses, and exit planners are specialists that help business owners leave their businesses “when they want, for the money they need, and to whomever they choose,” according to Exit Planning Solutions.
Getting outside help from a trained pro can improve your chances of a successful exit instead of a sad ending.
Russell Bernstein is a business broker with Keller Williams at KW Commercial in Metairie as well as the president of the Louisiana Business Broker’s Association.
