Succession Planning is as Easy as 1, 2, 3……..or is it?
Your father started this machine shop. You remember being allowed to go to work with him sometimes when you were barely tall enough to see what was on the tables. “Don’t touch anything,” he would admonish. And you would keep a distance, all the while itching to get your hands on the tools and machinery.
Later, you would spend time after school, on weekends and in the summer working at your father’s shop. You geared your education toward technical classes so that you could make incremental improvements to your Dad’s legacy. And, when the time came for him to retire, you took over the business and grew it from a small, three or four person shop to managing 30 or more employees at a time. You have seen the shop through good times and bad. Now it is time for you to retire and pass it to the next generation. Maybe.
Hard facts about business transition
According to the Conway Center for Family Business, you were actually one of the lucky ones as far as successfully transitioning the company from your father to you. Only about 30% of such businesses manage to survive this first generational transfer. After that, the success rate drops to only 12%. Assuming your child or children keep the business viable, the chances of them passing it on to your grandchildren plummet to a mere 3%.
Choices…….
So, as you work with your father at the machine shop, you also continue living your life. You get married and have children of your own. Is it your gut instinct to bring them into your machine shop at an early age, just as your father did with you, so that they can get a feel for the business and be ready to take over the reins when the time comes? Or, knowing how you struggled to keep up with the economic ups and downs of running a small manufacturing enterprise, knowing how difficult it is to keep up with the ever-changing technology to stay competitive, encourage them to pursue other endeavors?
If you chose to send you children as far away from manufacturing as possible, you are not alone. A 2017 Deloitte study shows that, while 80% of Americans believe that US manufacturing is vital to the “American Way of Life”, only one-third of Americans would encourage their children to pursue a career in manufacturing. There are several reasons for this disconnect. One reason is that many Americans still believe that manufacturing is on the decline or, at the very least, too unstable. Some parents view manufacturing as too “dirty, dank and dangerous”, while others want their children to pursue and education that will allow them to earn a good living without struggling as hard.
Fortunately, the study also shows that some of these negative manufacturing perceptions are changing, with 88% of Americans believing that manufacturing jobs require technical skill and expertise and 81% expressing the opinion that manufacturing careers are cleaner and safer than in years past.
Choosing to transition your company
If, however, you chose to nurture your child’s interest in maintaining the family business, a whole new set of circumstances arise.
If you have more than one child, how do you determine the division of labor while you are still in charge? How do you divide the company upon your retirement? What if your children are not interested in pursuing business ownership despite your encouragement? What if you need to step down before your child or children are ready to take over?
SEWN (Strategic Early Warning Network) provides guidance for you through all of these transition issues. Our talented Regional Directors will help you to accurately value your company and create a strong, viable transition plan to cover your “what-ifs”. Even if you are not yet ready to retire, it is never too early to start planning for the future – yours, your children’s and your business’.
For free, professional succession planning and many other small manufacturing enterprise services in the Southeast region, call Greg Olson, SEWN Regional Director at 215-776-0130 to set up a no-cost, no-obligation consultation regarding your business transition. Or, if you prefer, you can email Greg at sewnse@steelvalley.org with your questions. And be sure to visit our web site at www.steelvalley.org for more information regarding all of SEWN’s services, our newsletters and success stories, and interesting, relevant blog articles to help you navigate today’s manufacturing environment.
SEWN was founded in 1989 to support the region’s manufacturers and preserve jobs. The Department of Labor embraced and sponsored the program in 1993 to protect Pennsylvania companies and jobs. Since then, we have expanded to five regional offices, helping hundreds of companies and saving thousands of jobs statewide. Today, SEWN is one of the most cost-effective jobs programs in the United States. Over the last five years SEWN’s job saving services have saved Pennsylvania more than $34.8 million in unemployment benefits (over $836 million if jobs/payroll multipliers are included). Since its inception, SEWN has contributed to the retention and revival of more than 900 industrial enterprises within Pennsylvania, impacting more than 20,000 jobs.