Why is planning for the family owned business important?

Family owned businesses form the backbone of American enterprise, but surveys of small business owners reveal that little or no planning for survival of the business to the next generation has been accomplished. The importance of family owned business is evident from statistics which reveal that over the past decade, all net job growth in the United States has occurred in businesses with 20 or fewer employees. Estimates from the Internal Revenue Service suggest that 95% of U.S. corporations are closely-held and that they account for over one-half of the gross national product along with 50% of the total wages paid.

While nearly 70% of the family owned or closely-held business owners express the desire to have the business remain under family ownership, less than 1/3 of business owners have established formal business succession plans. Children frequently come into the business with inadequate skills or training, as nearly 85% of the children of family business owners become involved in the family business directly from school without obtaining other work experience. With these statistics, it is understandable that only 35% of family businesses pass successfully to the next generation and less than 13% of these businesses stay in the family for a period in excess of 60 years. For family owned businesses to accomplish successful transfer to the next generation, appropriate planning is essential.