Family-owned companies help drive the U.S. economy—is your small business ready to take the wheel? Put these family business tips and insights to work so you can take control of your firm’s future.
SCORE’s new infographic, The Family Business: Successes and Obstacles, highlights the value of family businesses as well as the challenges they face.
A family-owned business is any company owned by two or more family members and the family holds majority control or ownership. The size of these companies runs the gamut, from mom-and-pop shops to Fortune 500 firms.
Families definitely make their mark in the small business world. Of the 28.8 million small businesses in the U.S., 19 percent are owned by a family. Just over one million of small family-owned businesses are led by husband-wife teams.
Family-owned businesses mean business.
These companies stand at the forefront of the national economy. They employ 60 percent of the American workforce, and they’re responsible for creating 78 percent of all new jobs. In addition, they generate 64 percent of U.S. Gross Domestic Product (GDP).
But family firms hit challenges transitioning into the next generation.
Every family has its struggles—like who gets stuck sitting next to Aunt Mimi at the next holiday get-together. But when you combine business with family, those challenges become even more complex.
Only 30 percent of family-owned companies successfully transition ownership from the first to second generation, while 12 percent transition from the second generation to the third. Just 13 percent of family businesses stay within the family for more than 60 years.
One factor affecting generational transitions could be planning. Nearly half—47 percent—of family business owners expecting to retire within five years haven’t named a successor yet. Planning can play a key role in a business’s ability to transition into subsequent generations. Experts recommend creating a succession plan as many as five years—or more—in advance to reduce stress and transition peacefully.
Which best practices lead to successful transitions?
Statistics suggest that successful family businesses don’t “wing it.” A healthy 94 percent of family-owned companies with high annual revenue are controlled by a supervisory or advisory board. Just as importantly, only 31 percent, on average, of board membership was comprised of family, a number that suggests perspective from “outside” the family can contribute to good governance.
And those boards are built with an eye on taking the business into the next generation. Over 40 percent of the companies included less-experienced family members on committees and boards, with the goal of nurturing the younger generation’s management and business skills. It’s a training ground that provides the valuable experience needed to move the family business successfully into the future.
Family-owned companies have another big advantage over non-family firms: almost three-quarters (74 percent) of family businesses report stronger values and culture, which can be leveraged as strengths in areas like customer care, recruitment and employee retention.
Set your family business on the road to success.
SCORE mentors can’t tell you who should sit next to Aunt Mimi at dinner, but they can help you sort out other complexities with your family business tips. Whether you need to create a succession plan or navigate internal conflict, a SCORE mentor will guide you with fresh, objective perspective, so you can build a stronger business for this generation—and the next.