Historically community banks haven’t embraced their role in addressing the opportunities and challenges in ownership and management transition for family-owned and closely-held businesses. Rather than continuing to stand at arm’s length, there are several issues that community bankers need to take into consideration that would benefit their business clients and could mean new business opportunities for the bank itself:
- With the legendary lessons learned from the real estate and tech bubbles in mind, we know that poorly planned and executed transition strategies may be the next great threat to the quality of their loan portfolios.
- Proactive support for transition planning in family and closely-held businesses may provide community banks with a unique way of differentiating themselves from the more transaction oriented megabanks.
- By factoring ownership and management transitions into discussions with centers of influence community banks can position themselves as offering a unique value proposition to clients, lawyers, accountants, financial advisors and insurance agents.
- Lastly, family-owned and closely-held businesses comprise the backbone of many of the communities that community banks serve. Successfully planned and managed transitions may be as important to sustainable economic development as luring the next big factory with tax incentives and low cost land.
A Demographic Tsunami is Threatening Family Businesses
Small businesses face an unstoppable demographic tsunami.
The calculus is pretty simple. Family-owned and closely-held businesses comprise something more than 80% of all North American businesses and 80% of those employ 20 employees or less. Family businesses account for not less than 58% of GDP, more than 60% of the US workforce and at least 78% of all new job creation. The community bank’s stake in having a robust and vibrant small business sector is obvious. Yet small businesses face an unstoppable demographic tsunami. Around 60% of these family- owned and closely-held businesses expect a change in leadership or ownership in the next 10 years as Baby Boomers retire.