By Maurie Cashman / Consulting Column
When it comes to envisioning a healthier region, how closely do we look at the health of the family businesses that make up our employment base?
The Great Cities Institute at the University of Chicago surveyed 363 family-owned manufacturing companies in Chicago’s six collar counties. These companies employed 20-250 workers, collectively over 22,000 people. Three-quarters of the owners surveyed were over 55 years old. Half had no succession plans in place, and 62 percent had not designated a specific successor, up from 38 percent in a 1989 survey.
Twenty percent of Iowa businesses are family-owned and, according to the Small Business Administration, 78 percent of all new jobs are created by family businesses. While large companies like Kemin, Vermeer, TrueNorth and Sukup have been lauded for their ownership transition planning, that is a small portion of that 20 percent.
Now we find ourselves in a changing economy in which jobs are becoming increasingly technical, requiring higher levels of education or training. Given these foundational changes in the way companies will do business, it is more critical than ever that our family-owned companies transition to new ownerships that can adapt to new ways of doing business.
How are we doing? A survey by BEI Exit Planning Solutions, revealed the following top responses: 40 percent said they were either “too busy” or “didn’t feel a sense of urgency,” 37 percent said they would “act when ready,” and 31 percent said they had “more pressing issues.”
What can we do? Planning and interacting are the keys.
- Use the universities. Commission the University of Iowa and University of Northern Iowa to undertake a study similar to the University of Chicago’s to give the state a more clear view of how deep this problem may be. The stakes are high and a small investment may lead to much better decision making.
- Let them know they’re important. We need to drive home to our family-owned employers their importance to the health of the region. We need these families to have a complete understanding of how important their orderly transition of business ownership is. Most of these owners have deep ties and great pride in their communities and their employees. Are we supporting them in the same way that we go after a large, out-of-state employer dangling a new plant in exchange for tax breaks? We likely need both, in a healthy balance.
- Have the right expectations. We cannot expect that family owners will find a way to keep it in the family or community at all cost. Economics don’t always allow that and the family has the absolute right (and often the need) to maximize the value from their business. However, with proper planning, economics nearly always provide for a transition of ownership that minimizes disruption and allows communities to adjust to new realities in positive ways.
We will not be able to retain every company, nor should we. However, we do need to identify companies that generate economic and community value. By working with those companies, we retain more of the best. By retaining more of the best, we attract the best startups and the best relocating business and new plants. We have great educational institutions, recreational opportunities, low cost of living and great people. If we are worried about retaining our best companies, we should be asking ourselves, “why?”
There is a reason nearly half of owners say they are too busy. It’s because they are. Running a successful business is tough and planning for the next ownership generation is something you only do once. Bringing in professional advisors who manage lots of these transitions can yield huge payoffs and turn a seemingly impossible undertaking into a well-managed process.
The orderly transition of ownership in our family-owned companies is critical to the fiscal as well as the physical health of the region. It is achievable. We all have a shared interest in the success of these companies.
This is the time that family business owners must act to secure the payoff for their life’s work. This is the time that we must secure the future of our business community.
Maurie Cashman is a member-owner of Agri-Management Farm Services LLC and manages its Aspen Grove Investments brand.