“Family business again more often in the hands of younger generation” according to Het Financieele Dagblad on March 14, 2014. The article states that under the influence of the recession, it is less easy to sell the family business externally and therefore more transfers are taking place within the family. Reference is made to the research done by research firm Panteia in cooperation with Hogeschool Windesheim in Zwolle.
Effects of the crisis
This surprising outcome is not in line with what we experience in practice. The outcome was also a surprise for the researchers. They conclude that the crisis is the main explanation for the outcome being different than expected. Due to the economic situation, shares in family businesses have become worth less, and buyers are having more and more difficulty securing financing. This makes it less easy to sell the family business externally. The study focused on SME family businesses. Although the exact size of the companies included in the study is not indicated, it appears – given the examples in the article – to be relatively smaller SME family businesses.
New generation often too young and inexperienced for business transfer
On the contrary, in our practice we see that increasingly family businesses are not being transferred to the children of the family owners. The reason for this is simple: the businesses have often grown significantly during the period in which they have been run by the generation that now wants to say goodbye. This requires deeper (managerial) competencies and expertise than the children can offer at the age when they can take over the business. The existing management has often grown with the growth of the company and has gradually acquired this expertise through experience. The new generation has to take that step all at once, which is not easy. The children are often too young to follow in their parents’ footsteps and take over the management tasks.
It should be kept in mind that managing large companies is much more complex than in the period when the previous generation managed companies. This is because developments are rapid, there are major digital changes and competition is demanding.
Add to this the fact that the current generation is less willing to work a full six-day work week, given work-life balance has become increasingly important. In short, plenty of reasons not to transfer the business within the family but externally.
It is clear that this is less of an issue for smaller family-owned SMEs. The problems at these companies are on a smaller scale and less complex. As a result, there is more likely to be a good fit between what the new generation can offer and the qualities needed to run these enterprises. What is undoubtedly also an effect of the crisis is that the family businesses offer job security as opposed to those where restructuring occurs with great regularity. That insight is there, after all, thanks to the crisis.
If you also want to know whether the company qualifies for a business transfer within the family or whether an external buyer should be sought after all, we can perform this analysis together with you.
Maarten Vijverberg, Partner