Financial Planning: Dismal Family Business Survival Stats Worrisome, Finds Study
A recent study on family businesses has found that only 30% survive into the second generation, and a mere 12% make it to the third. The statistics are alarming and point to the importance of financial planning in ensuring the sustainability of a family business.
Most families assume that they will pass on their business to the next generation without any major difficulties. However, the reality is that without proper planning, the chances of success are slim. The study shows that a lack of financial planning is one of the key factors contributing to the high failure rates of family businesses.
The importance of a well-planned and executed financial strategy cannot be overstated. This includes a comprehensive understanding of cash flow, financial stability, and growth opportunities. It’s also important to establish proper systems for accounting, financial reporting, budgeting, and forecasting.
One of the most critical components of financial planning for family businesses is tax planning. Proper tax planning ensures that the business is maximizing its tax savings while remaining compliant with tax laws. This involves understanding the different tax regulations that pertain to the business and implementing tax planning strategies that are relevant to the company's operations.
Succession planning is another crucial aspect of financial planning. With only 12% of family businesses surviving to the third generation, it's vital to have a succession plan in place that ensures a smooth transition of ownership and management. This includes identifying potential successors, preparing them for leadership roles, and setting up a clear plan for the transfer of ownership.
In addition to these strategies, establishing a strong financial mindset is equally important for family businesses. This means thinking strategically about financial decisions, prioritizing smart investments, and managing risk effectively. A strong financial mindset also means having a long-term vision for the business and taking a proactive approach to financial planning and management.
For family businesses that are struggling financially, it’s important to seek professional help. A financial advisor can provide valuable guidance and support on issues ranging from budgeting and cash flow management to tax planning and investment strategy. They can also help businesses make informed financial decisions while minimizing risk and maximizing opportunities for growth.
A family business that is well-planned and financially secure has a much greater chance of success than one that is not. By taking a proactive approach to financial planning and management, family businesses can position themselves for long-term sustainability and growth.
However, there is a caveat when it comes to financial planning for family businesses. Many families make the mistake of relying solely on the advice of their accountants and lawyers. While these professionals are essential, it's also important to have a team of advisors who can provide a more comprehensive perspective. This includes financial advisors, investment advisors, and business consultants who can work together to provide a holistic approach to financial planning and management.
Another point to keep in mind is that financial planning is not a one-time event; it’s an ongoing process. Family businesses need to regularly revisit their financial plans and adjust them as needed based on changes in the business environment, economic conditions and personal factors. This means constantly monitoring the business’ financial situation and making adjustments to the plan as needed.
In conclusion, the dismal survival statistics of family businesses suggest that financial planning is a crucial component for family business success. A well-planned financial strategy that emphasizes cash flow, tax planning, and succession planning can help to ensure the sustainability and growth of a family business. It's essential to have a team of advisors working together to provide a holistic approach to financial planning and management, and businesses need to regularly revisit their financial plans and adjust them as needed. By taking a proactive approach to financial planning, family businesses can position themselves for long-term success and stability.